Gold trading outlook: futures hover over 3-month lows on strong dollar, Fed threat

Gold edged up on Wednesday to trade slightly higher than its lowest in more than three months as persistent strength in the dollar dented demand for the metal.

Comex gold for delivery in April was up 0.30% at $1 163.6 per troy ounce at 7:49 GMT, shifting in a daily range of $1 164.3 and $1 160.3. The precious metal dropped 0.55% on Tuesday to $1 160.1.

Gold took a heavy blow last Friday after the U.S. Labor Department released a report that showed stronger-than-expected non-farm payrolls and an unemployment rate that reached its lowest in nearly seven years.

The robust data renewed speculations that the Federal Reserve will initiate sooner rather than later its first increase in borrowing costs since 2006. Additionally, on Monday Dallas Fed President Richard Fisher asked borrowing costs to be hiked faster, disregarding previous concerns of low inflation levels. Mr. Fisher also warned that a delay could expose the U.S. economy to a risk of recession.

An eventual increase in interest rates would curb demand for gold as the metal offers returns only through price gains. Meanwhile, such move will further boost the already strong dollar. Feds next two-day policy meeting is scheduled on March 17-18.

The U.S. dollar index for settlement in March traded 0.01% higher at 98.625 at 7:51 GMT, shifting in a daily range of 98.465 and 98.870, its highest in more than 11-1/2 years. The U.S. currency gauge gained 1.06% on Tuesday to 98.615.

The current level of gold prices could draw out support for Asia, some analysts have suggested, but warned that it would not be enough to offset the robust dollar.

“The possibility of further dollar gains is weighing on gold but Asian demand is emerging and may lend support for prices,” said HSBC analyst James Steel, cited by Reuters.

Gold was trading around $5 higher than the global benchmark in Shanghai, outlining strong demand. Typically, China, the metals second-largest consumer in the world, provides floor for falling prices.

Additionally, a prolonged weakness in equities could prompt investors to launch a wave of safe-heaven bids. The S&P 500 index slipped on Wednesday, while Asian stocks dropped to a two-month low.

Pivot Points

According to Binary Tribune’s daily analysis, April gold’s central pivot point on the Comex stands at $1 161.2. If the contract breaks its first resistance level at $1 168.5, next barrier will be at $1 177.0. In case the second key resistance is broken, the precious metal may attempt to advance to $1 184.3.

If the contract manages to breach the S1 level at $1 152.7, it will next see support at $1 145.4. With this second key support broken, movement to the downside may extend to $1 136.9.