Gold futures trading outlook: losses deepen amid upbeat US economic data

Gold fell to a fresh five-year low on Friday, headed for a fifth straight weekly decline which would be the longest such losing stretch since 2012, as more better-than-expected economic data from the US backed the case of an interest rate hike this year.

Gold futures for delivery in August traded 1.12% lower at $1 081.8 per ounce at 07:10 GMT, having earlier dropped to a fresh trough of $1 072.3, refreshing Mondays five-year low of $1 080.0. The contract managed to inch up 0.2% on Thursday to $1 094.1, snapping ten straight sessions of losses, the longest series of daily declines since 1996. Prices are down 4.4% so far this week.

The yellow metal has fallen by nearly 9% this year as the Federal Reserve indicated its readiness to raise borrowings costs for the first time since 2006, fueling a rally in the dollar against a basket of major trading peers.

Fed Chairwoman Janet Yellen reiterated in her testimony before US Congress last week that the central bank remains on track to raise rates this year for the first time in nearly a decade. Her comments were in line with the FOMC’s most recent policy statement and a speech she held on July 10th when she underscored a continued weakness in the US labor market but also expressed confidence that the US economy will continue to grow steadily in 2015, helping improve labor conditions.

Investors tend to turn bearish on gold at times of economic growth and rising interest rates as the precious metal yields returns only through price gains, while investment instruments that pay interest, such as bonds, become more attractive.

Data earlier this week showed that home resales in the US in June rose at a faster pace than projected to the highest in almost 8-1/2 years, while the Labor Department reported on Thursday that initial jobless claims fell by 26 000 to 255 000 in the week ended July 18th, the lowest since 1973. Meanwhile, the Conference Boards index of leading indicators, a measure of the outlook for the next three to six months, jumped 0.6% last month, double analysts median forecast.

The US dollar index for settlement in September traded 0.16% higher at 97.385 at 07:30 GMT, shifting in a narrow daily range of 97.455-97.245. The contract fell 0.5% on Thursday to 97.226. It touched a 3-month high of 98.310 on Monday.

The rate hike speculations and upbeat economic data run parallel to a global liquidation of gold-ETFs. Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, fell for a sixth straight day on Thursday, shedding 2.68 tons to 684.63 tons, the lowest since September 2008. Holdings in the fund have shrunk by little over 49% since peaking in December 2012 at 1353.35 tons.

However, the low prices are also expected to boost physical demand, with the US Mint and the Royal Canadian Mint reporting a significant increase in sales of coins. Speculative investors who seek cheap valuations might also find the current price level attractive and add to positions, although the general sentiment, reflected largely by the behavior of gold-ETFs, remains definitively bearish.

“Gold has always had a dual nature as a currency and a commodity. At present it is not desired in either form,” Macquarie analysts said, cited by CNBC. “Eventually, though, shorts will have to cover, and we stick to our view that some confidence should return to the market post a Fed hike, though gains are likely to be slower and more moderate than we had previously predicted.”

Pivot points

According to Binary Tribune’s daily analysis, August gold’s central pivot point on the Comex stands at $1 095.0. If the contract breaks its first resistance level at $1 104.0, next barrier will be at $1 113.8. In case the second key resistance is broken, the precious metal may attempt to advance to $1 122.8.

If the contract manages to breach the S1 level at $1 085.2, it will next see support at $1 076.2. With this second key support broken, movement to the downside may extend to $1 066.4.

In weekly terms, the central pivot point is at $1 140.3. The three key resistance levels are as follows: R1 – $1 150.5, R2 – $1 169.1, R3 – $1 179.3. The three key support levels are: S1 – $1 121.7, S2 – $1 111.5, S3 – $1 092.9.