Gold trading outlook: futures extend gains on weaker equities, oil

Gold gained for a third session on Tuesday to reach its highest in twelve weeks as investors sought safety in the metal amid plunging oil prices and weakness in equity markets.

Comex gold for delivery in February climbed 0.84% to $1 243.1 per troy ounce by 08:10 GMT, having earlier risen to $1 243.1, the highest since October 23. The precious metal jumped 1.37% on Monday to $1 232.8.

Investors assessed the possibility that the Federal Reserve may raise borrowing costs in June this year, despite inflation running lower than the targeted 2%. Continuously dropping oil prices threaten to pressure inflation even further down.

However, policy makers are still calling for an interest rate hike in June, Atlanta Fed Chief Dennis Lockhart has expressed his support for the idea and believes the move to initiate the first interest rate hike since 2006 would be justified. An increase in borrowing costs would boost the already strong dollar, while delivering a yet another blow to the non-interest-bearing gold.

The US dollar index for settlement in March was up 0.10% at 92.280 at 08:26 GMT, holding in a daily range of 92.365-92.020. The US currency gauge gained 0.04% on Monday to 92.184. A stronger greenback makes dollar-denominated commodities more expensive for holders of foreign currencies and curbs their appeal as an alternative investment, and vice versa.

Typically, plunging oil hurts gold’s appeal as hedge against an oil-led inflation. However, weakness in the equity markets spurred by the continuously falling oil prices prompted investors to seek protection in gold.

MKS Capital trader James Gardiner said, cited by CNBC, that buying around the $1 240 area “might result in a sharp spike into the mid-40s if the metal spends some time today consolidating around $1 238-39”.

China, the worlds largest gold consumer, has increased its gold appetite ahead of the Lunar New Year, providing support for the metal, as it is usually used as gifts during that time of the year. The holidays are celebrated on February 19-20th and demand is expected to stay strong at least until they pass.

Meanwhile, speculations that Greece would be the first country to leave the euro zone have also aided the yellow metal. The Syriza party, which is widely expected to win at the elections scheduled on January 25, has promised to lift Berlin-imposed austerity policies and significantly reduce the country’s debt, should it come to power.

However, Barclays, Goldman Sachs and Societe Generale are projecting extended drops for the metal during 2015.

“We expect gold prices to test new lows in 2015 as they battle formidable hurdles in the form of the dollar strengthening against the euro to levels last reached over 10 years ago and the first rate hike in the United States in nine years,” Barclays analyst Suki Cooper said in a note, cited by CNBC.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, did not change on Monday and remained at 707.82 tons. Changes in holdings typically move gold prices in the same direction.

Pivot Points

According to Binary Tribune’s daily analysis, February gold’s central pivot point on the Comex stands at $1 228.8. If the contract breaks its first resistance level at $1 240.0, next barrier will be at $1 247.3. In case the second key resistance is broken, the precious metal may attempt to advance to $1 258.5.

If the contract manages to breach the S1 level at $1 221.5, it will next see support at $1 210.3. With this second key support broken, movement to the downside may extend to $1 203.0.