Gold trading outlook: futures extend declines to trade near seven-week high

Gold fell on Thursday to trade below the seven-week high it reached yesterday as weak dollar and equities boosted the precious metals appeal as safe-haven.

Comex gold for delivery in February dropped 0.58% to $1 222.3 per troy ounce by 08:54 GMT, having shifted in a daily range of $1 233.4-$1 221.4 an ounce. The precious metal fell 0.21% on Wednesday to $1 229.4, but not before it reached a new seven-week high of $1 238.9.

However, gains were limited as oil prices hit fresh five-year lows yesterday, as the two tend to fall together amid investor worries about a oil-spurred deflation.

“It is good that gold is able to stay above $1 200 despite another slump in oil prices. But it is a little bit concerning we havent been able to build on it with the dollar weakening quite a bit,” said a Hong Kong-based precious metals trader cited by CNBC.

The US dollar index for settlement in December was not changed and remained at 88.287 at 08:58 GMT, having earlier fallen to 87.935, it lowest since December 1st. The US currency gauge lost 0.46% on Wednesday to 88.287. A stronger greenback makes dollar-denominated commodities more expensive for holders of foreign currencies and curbs their appeal as an alternative investment. However, the dollar index dropped for a fourth consecutive session as it faces increasing yen strength, while Asian stocks moderated movements on worries of global growth.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, holding gained 2.99 tons to 724.80 tons, its highest since November 10, on Wednesday, providing additional support for gold prices.

Despite, the first day-to-day increase since August, 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 on it meeting next week and thus support the dollar and pressure the non-interest-bearing gold.

“Should a combination of low oil and shaky equities plus increasing currency uncertainty promote investor risk aversion, then gold may gain on renewed safe-haven buying, especially if there is even a hint of fresh sovereign risk concerns,” HSBC analysts said in a note cited by CNBC.

Meanwhile, on the Shanghai Gold Exchange, demand for gold of 99.99 percent purity increased for a second consecutive day to 28 152 kilograms, its highest since November 18. Usually investors look to China, the worlds biggest consumers, and India to boost physical demand for the precious metal and thus provide floor for falling prices.

Pivot Points

According to Binary Tribune’s daily analysis, February gold’s central pivot point on the Comex stands $1 231.2. If the contract breaks its first resistance level at $1 237.1, next barrier will be at $1 244.9. In case the second key resistance is broken, the precious metal may attempt to advance to $1 250.8.

If the contract manages to breach the S1 level at $1 223.4, it will next see support at $1 217.5. With this second key support broken, movement to the downside may extend to $1 209.7.