Gold trading outlook: futures hold near 3-week high on Fed caution

Gold hovered near a recent peak touched on Friday after the Federal Reserve decided to postpone an expected interest rate increase for one of its upcoming meetings, or next year, spurring fresh concerns about the global economy.

Gold futures for delivery in December rose 0.09% to $1 138.8 per troy ounce at 07:02 GMT, ranging between $1 139.4 and $1 135.4 for the day. The contract jumped 1.9% on Friday to $1 137.8, having earlier touched a 3-week high of $1 141.5. It settled the week 3.1% higher, ending three straight weekly drops.

The precious metal has rebounded from a 5-1/2-year low touched in late July after growth concerns in China sparked fears for the global economy and fueled high volatility that rippled through financial markets. This, coupled with sluggish inflation at home, curbed previously predominant expectations that the Federal Reserve will increase interest rates in September for the first time since 2006.

However, with the US labor market and manufacturing continuing to improve, a majority of traders and analysts expect the central bank to take action in December, rendering gold’s rebound as short-lived. Fed Chair Janet Yellen told a press conference that most policy makers still expect to raise borrowing costs this year, underscoring the strength of the US economy and tying last weeks decision to uncertainty regarding the global economy and recent market turbulence. Three policy makers – John Williams, James Bullard and Jeffrey Lacker, separately noted over the weekend the likelihood of an increase in borrowing costs this year.

The Federal Open Market committee holds its two remaining meetings for the year on October 27-28th and December 15-16th. Atlanta Fed President Dennis Lockhart will deliver a series of speeches on the economy this week, while Fed Chief Janet Yellen will hold a speech in Amherst, Massachusetts on September 24th.

Investor focus will also fall on this weeks key economic data, with a string of US housing numbers expected to show robust performance, while durable goods orders likely contracted in August. On Friday, a final US GDP estimate is expected to confirm a revised reading released on August 27th that pinned second-quarter growth at 3.7%, while a preliminary private report on Wednesday is expected to show that activity in Chinas sector of manufacturing probably contracted for a seventh straight month in September.

Data by the US Commodity Futures Trading Commission showed on Friday that hedge funds and money managers cut their net-long position in COMEX gold to the lowest in five weeks in the week ended September 15th, while increasing their short positions.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, were unchanged for a seventh day at 678.18 metric tons on Friday, 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 $1 135.4. If the contract breaks its first resistance level at $1 143.9, next barrier will be at $1 150.0. In case the second key resistance is broken, the precious metal may attempt to advance to $1 158.5.

If the contract manages to breach the S1 level at $1 129.3, it will next see support at $1 120.8. With this second key support broken, movement to the downside may extend to $1 114.7.