Gold trading outlook: futures little changed with eyes on the Fed

Gold remained in a tight weekly range on Wednesday, not far off from Fridays one-month low, as investors remained in waiting mode before the Fed decides at its two-day policy meeting starting today on whether to raise interest rates or wait for later this year.

Gold futures for delivery in December traded 0.28% higher at $1 105.7 per troy ounce at 06:58 GMT, shifting in a daily range of $1 105.8 – $1 103.0. The contract slid 0.5% on Tuesday to $1 102.6 an ounce, having ranged between $1 109.8 and $1 101.5 for the week.

The precious metal is not expected to perform any big moves before the Federal Reserves after-meeting statement on Thursday, with a majority of market players expecting the central bank to initiate its first interest rate increase since 2006 in December. Previously predominant, expectations for a move in September have recently eased due to fears of an economic slowdown in China and subsequent volatility in financial markets.

Gold has benefited in recent years from borrowing costs at rock bottom as they reduce the opportunity cost of holding the precious metal, which doesn’t pay interest and yields returns only through price gains. However, the yellow metal has remained under pressure ever since the Federal Reserve announced it will begin paring back its Quantitative Easing program, and ultimately ended it, followed by a gradual increase in interest rates.

In case Thursday’s decision brings a rate hike, gold is expected to drop under the $1 100 mark, while a delay could propel it toward $1 150. However, upside momentum would probably remain limited as expectations for the central bank to raise interest rates are very much likely to materialize this year, or at any close subsequent meeting.

Recent mixed US economic data have added to the uncertainty, backing the case of a delay in the hike, but any excessive upside movement in gold will likely be short-lived. A preliminary report showed on Friday that consumer sentiment in the US in September slid to the lowest in a year, with the corresponding preliminary Michigan Consumer Sentiment index sliding to 85.7 from 91.2 in August. Producer inflation remained flat compared to a month earlier, according to a separate report. Data on Tuesday showed that manufacturing activity in the New York state contracted for a second month in September and US industrial production declined in August, while retail sales expanded. A report later today is expected to pin consumer inflation at -0.1% in August compared to a month earlier, while the core measure likely advanced 0.1%.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, were unchanged for a fourth day at 678.18 metric tons on Tuesday, remaining nearly 50% below a peak of 1353.35 tons in December 2012.

Pivot points

According to Binary Tribune’s daily analysis, December gold’s central pivot point on the Comex stands at $1 104.2. If the contract breaks its first resistance level at $1 106.9, next barrier will be at $1 111.2. In case the second key resistance is broken, the precious metal may attempt to advance to $1 113.9.

If the contract manages to breach the S1 level at $1 099.9, it will next see support at $1 097.2. With this second key support broken, movement to the downside may extend to $1 092.9.

In weekly terms, the central pivot point is at $1 108.4. The three key resistance levels are as follows: R1 – $1 118.6, R2 – $1 133.7, R3 – $1 143.9. The three key support levels are: S1 – $1 093.3, S2 – $1 083.1, S3 – $1 068.0.