Gold trading outlook: futures gain sharply on mounting geopolitical tension in the Middle East

On Thursday gold for delivery in February traded within the range of $1,057.50-$1,062.70. Futures closed at $1,060.30, ticking up 0.02% on a daily basis, after a 1.61% slump on December 30th. The daily low has been the lowest level since December 18th, when the metal registered a low of $1,052.70. In weekly terms, gold lost 1.57% of its value last week, marking its third drop in the past four weeks and also the steepest one since the week ended on November 29th. The commodity has lost 0.52% in December, while extending the drop from the preceding month (-6.63%). The latter has been the sharpest monthly rate of decline since July 2015.

On the Comex division of the New York Mercantile Exchange, gold futures for delivery in February were gaining 1.23% on Monday to trade at $1,073.20 per troy ounce. The precious metal went up as high as $1,074.00 earlier today, or the highest level since December 29th, when a daily high of $1,079.70 was reached.

The commodity showed a sharp reaction to news that Saudi Arabia and Iran severed their diplomatic relationship during the weekend. This act followed an attack by Iranian protesters on Saudi Arabias embassy in Tehran, after Saudi Arabia put to death Shiite cleric Nimr al-Nimr.

“Iran has acted in accordance with its (diplomatic) obligations to control the broad wave of popular emotion that arose,” the foreign ministry representative, Hossein Jaberi Ansari, said in a television interview, cited by Reuters. “Saudi Arabia benefits and thrives on prolonging tensions… (It) has used this incident as an excuse to fuel the tensions”, Ansari added.

Today gold trading may be influenced by the monthly survey on US manufacturing activity conducted by the Institute for Supply Management (ISM). The corresponding gauge for manufacturing sector activity probably remained in the zone of contraction for a second consecutive month in December, coming in at 49.0, according to market expectations, up from 48.6 in November. The latter has been the lowest PMI reading since June 2009, when the barometer was reported at a level of 44.8. In case the PMI improved more than anticipated in December, this would have a strong bullish effect on the US dollar and a moderate-to-strong bearish effect on gold. The ISM is to release the official PMI reading at 15:00 GMT.

Another report on US manufacturing, released by Markit Economics, is scheduled at 14:45 GMT. The final estimate of the Manufacturing Purchasing Managers’ Index for December probably confirmed the flash estimate of 51.3, which was reported on December 16th. If expectations were met, this would be the lowest PMI reading since October 2012, when the final gauge was reported at 51.0. In November the final seasonally adjusted PMI stood at 52.8, inching up from a preliminary value of 52.6. In case the final PMI for December confirmed or came below the preliminary reading, this would cause a moderate bearish impact on the US dollar and a limited-to-moderate bullish effect on gold.

Daily and Weekly Pivot Levels

By employing the traditional calculation method, the daily pivot levels for gold are presented as follows:

Central Pivot Point – $1,060.17
R1 – $1,062.83
R2 – $1,065.37
R3 – $1,068.03

S1 – $1,057.63
S2 – $1,054.97
S3 – $1,052.43

By using the traditional method of calculation again, the weekly pivot levels for gold are presented as follows:

Central Pivot Point – $1,072.20
R1 – $1,086.90
R2 – $1,113.50
R3 – $1,128.20

S1 – $1,045.60
S2 – $1,030.90
S3 – $1,004.30