Gold trading outlook: futures near 5-month high following ECB move, ahead of Greek vote

Gold fell on Friday to trade near its highest level in five months, heading for a third weekly increase after the European Central Bank introduced an asset-purchasing program.

Comex gold for delivery in February fell 0.55% to $1 293.5 per troy ounce by 07:58 GMT, shifting in a daily range of $1 302.9 – $1 292.7. The precious metal settled 0.54% higher on Thursday, but not before it jumped to $1 307.8, its highest since August 15.

The ECB announced it will start buying €60 billion worth of bonds, with maturity between 2 and 30 years, every month until September 2016, outlining efforts to rejuvenate the European economy and fend off deflation. Gold prices got boosted by the move, as the metal is typically seen as hedge against inflation.

The expected decision also supported Asian equities, extending their gains from yesterday.

However, uncertainty persists in the region, driven by speculations that Greece will be the first country to leave the 19-member group. Should the Syriza party win at the elections scheduled on January 25, as widely expected, Greece will most likely depart the Eurozone, in line with the political groups promises.

Investors attention is now shifting towards the upcoming Federal Reserve meeting next week, when policy makers will discuss whether to increase interest rates. The US economy is showing signs of improvement, which weighs in favor of a rate hike. However, inflation is still running below Feds target of 2%, pressured by plunging oil prices.

An eventual increase in US interest rates would hurt golds performance.

Analysts have projected gold to continue its uptrend as the metal has shifted away from its link to the euro, which is trading close to 11-year lows against the dollar.

“Despite golds historical positive correlation to the euro, the scope for further euro losses would provide a boost for bullion, in our view, based partially on golds appeal as a perceived safe haven asset along with gold being a currency that you cannot print more of,” said HSBC analyst James Steel, cited by CNBC. Mr. Steel also predicted that the precious metal will go higher, should the $1 300 level hold.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, did not change on Thursday and remained at 740.45 tons. Changes in holdings typically move gold prices in the same direction.

The US dollar index for settlement in March was up 0.18% at 94.530 at 08:02 GMT, holding in a daily range of 94.350-94.775, its highest since 2003. The US currency gauge climbed 1.31% on Thursday to 94.362. 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.

Pivot Points

According to Binary Tribune’s daily analysis, February gold’s central pivot point on the Comex stands at $1 295.9. If the contract breaks its first resistance level at $1 312.6, next barrier will be at $1 324.6. In case the second key resistance is broken, the precious metal may attempt to advance to $1 341.3.

If the contract manages to breach the S1 level at $1 283.9, it will next see support at $1 267.2. With this second key support broken, movement to the downside may extend to $1 255.2.