Gold trading outlook: futures slide from two-week highs, as heightened rate hike expectations push USD to a fresh 7-month peak

On Thursday (in GMT terms) gold for delivery in December traded within the range of $1,265.5-$1,275.9. Futures closed at $1,267.5, edging down 0.19% compared to Wednesday’s close. It has been the 193rd drop in the past 363 trading days. The daily high has been a level unseen since October 5th, when a high of $1,279.4 a troy ounce was registered. The precious metal has increased its drop to 3.77% so far during the current month, after gaining 0.43% in September.

On the Comex division of the New York Mercantile Exchange, gold futures for delivery in December were edging down 0.26% on Friday to trade at $1,264.2 per troy ounce. The precious metal went up as high as $1,267.2 during early Asian trade, while the current daily low was at $1,262.1 per troy ounce, recorded during the early phase of the European trading session.

The US Dollar Index, a gauge reflecting the relative strength of the greenback against a basket of 6 other major currencies, was edging up 0.24% on the day at a level of 98.53, after going up as high as 98.59 earlier. The latter has been the highest level for this index since March 2nd. The gauge has increased its advance to 3.29% so far in October, following a 0.65% drop in September.

Yesterday gold futures briefly touched a fresh two-week high, following this months policy decision by the European Central Bank, but then sharply reversed direction during the press conference with ECB President, Mario Draghi. The central bank kept the benchmark refinancing rate at a record low 0% for a sixth consecutive meeting in line with market expectations. In addition, the rates on the deposit facility and the lending facility were left unchanged at -0.40% and 0.25% respectively. It was reiterated that interest rates may stay at present or lower levels for an extended period of time, while the Banks monthly asset purchases amounting to EUR 80 billion are to run until the end of March 2017.

At the press conference, following the rate decision, President Mario Draghi pushed a possible adjustment to the asset-purchasing program to the Banks policy meeting in December, while noting that the Governing Council would have updated economic projections by then, which would facilitate a full decision at the time. The EUR/USD pair sank to lows unseen since June 24th, while gold retreated from two-week highs after Draghi finally hinted that asset purchase tapering would likely occur, despite it had not been in discussion at the Council meeting.

The US dollar has been continuously supported as of late by investor optimism regarding the Fed’s future policy stance, especially following what may be the clearest signal from one of the most influential bank officials, William Dudley. On Wednesday he said the target range for the federal funds rate may be raised in 2016, in case US macroeconomic development keeps following the current trajectory. Recent dollar strength mounted pressure on dollar-priced commodities, including gold.

Today market participants will be paying a close attention to a statement by Federal Reserve Governor and also a voting member of the FOMC, Daniel Tarullo, at 14:15 GMT in New York. Tarullo is to speak on “Pedagogy and Scholarship in a Post-Crisis World” at the Columbia Law School Conference on the New Pedagogy of Financial Regulation. Any hints on the Bank’s policy stance would heighten USD and gold volatility.

Meanwhile, investor medium-term rate hike expectations reached fresh six-month highs.

According to CME’s FedWatch Tool, as of October 20th, market players saw an 8.3% chance of a rate hike occurring at the Federal Reserve’s policy meeting in November, or unchanged compared to the prior nine business days, and a 73.9% chance of a hike in December, up from 69.5% in the preceding business day. As far as the February 1st 2017 meeting is concerned, the probability of such a move was seen at 75.5% on October 20th, up from 70.8% in the prior business day.

Daily, Weekly and Monthly Pivot Levels

By employing the Camarilla calculation method, the daily levels of importance for gold are presented as follows:

R1 – $1,268.5
R2 – $1,269.4
R3 (Range Resistance – Sell) – $1,270.4
R4 (Long Breakout) – $1,273.2
R5 (Breakout Target 1) – $1,276.6
R6 (Breakout Target 2) – $1,277.9

S1 – $1,266.5
S2 – $1,265.6
S3 (Range Support – Buy) – $1,264.6
S4 (Short Breakout) – $1,261.8
S5 (Breakout Target 1) – $1,258.4
S6 (Breakout Target 2) – $1,257.1

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

Central Pivot Point – $1,256.4
R1 – $1,265.9
R2 – $1,276.3
R3 – $1,285.8
R4 – $1,295.3

S1 – $1,246.0
S2 – $1,236.5
S3 – $1,226.1
S4 – $1,215.7

In monthly terms, for the yellow metal we have the following pivots:

Central Pivot Point – $1,326.7
R1 – $1,348.0
R2 – $1,378.8
R3 – $1,400.1
R4 – $1,421.3

S1 – $1,295.9
S2 – $1,274.6
S3 – $1,243.8
S4 – $1,212.9