Gold trading outlook: futures halt gains on fears high prices may hurt demand

Gold moderated increases on Wednesday, marking a third consecutive trading session of gains as dollar and equity weakness boosted the precious metals appeal as hedge.

Comex gold for delivery in February gained 0.01%, to $1 232.1 per troy ounce by 09:02 GMT, having shifted in a daily range of $1 238.9-$1 227.6 an ounce. The precious metal edged up 3.10% on Tuesday to $1 232.0, but not before increasing to $1 238.5, its highest since October 23.

Global equities decreased yesterday on speculation about a possible call for election in Greece and slowing China growth, after the countrys market posted its worst day in five years.

“The best chance for gold to go higher would be for the financial market to become unnerved over equity declines in China, fresh sovereign risk worries in the euro zone and currency market volatility,” said HSBC analyst James Steel, cited by Reuters.

“There may be some additional short covering left in the market, especially if Asian equities wobble further. Further gains will begin to crimp price-sensitive Asian demand and could threaten one of the planks of the recent rally,” he said

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, holding gained 2.69 tons to 721.81 tons, its highest since November 27, on Tuesday, providing additional support for gold prices.

However, holdings in the fund remain near six-year lows as investors are concerned about the current strong state of the US economy could push the Federal Reserve to increase interest rates sooner rather than later and thus support the dollar and pressure the non-interest-bearing gold.

Although, Dennis Lockhart, head of the Atlanta Federal Reserve, calmed investors down by saying that he is not in a rush to drop the Feds promise to keep interest rates low for a “considerable time”, John Williams, San Franciscos Fed chief, also confirmed by saying that the phrase is still suitable.

The US dollar index for settlement in December was up 0.02% at 88.710 at 08:45 GMT. The US currency gauge lost 0.40% on Tuesday to 88.692, but not before it falling to 88.155, its lowest since December 2. A stronger greenback makes dollar-denominated commodities more expensive for holders of foreign currencies and curbs their appeal as an alternative investment.

Pivot Points

According to Binary Tribune’s daily analysis, February gold’s central pivot point on the Comex stands $1 223.3. If the contract breaks its first resistance level at $1 247.2, next barrier will be at $1 262.3.

In case the second key resistance is broken, the precious metal may attempt to advance to $1 286.2. If the contract manages to breach the S1 level at $1 208.2, it will next see support at $1 184.3. With this second key support broken, movement to the downside may extend to $1 169.2.