Gold trading outlook: prices drop as Fed seen hawkish

Gold prices reached a two-month low during early trade in Europe today, as investors priced in remarks of an earlier rate hike in Feds July minutes, boosting the US dollar. Ongoing conflicts in Ukraine and the Middle East prompted some safe haven bids, partially paring gold losses.

Gold futures for December delivery traded at $1 281.3 per troy ounce, up 1.07% for the day, at 7:57 GMT on the Comex in New York today. Prices ranged from a two-month low of $1 274.9 to $1 292.0 per troy ounce. Gold declined 0.1% yesterday, logging the fifth straight session of losses.

“Gold was pressured lower by the Fed minutes, and the trend in the short term looks weak,” Mark To, head of research at Wing Fung Financial Group, said for Bloomberg. “Investors are looking ahead to Yellen’s speech” on Friday.

Silver for September delivery stood for a 0.94% drop at $19.313 per troy ounce, while palladium was down 0.35% at $865.40. October platinum was down 0.37% at $1 423.90.

The minutes from Feds latest meeting buoyed the dollar yesterday, as traders priced in a more hawkish stance by some policy makers, who debated whether a rate hike should be introduced earlier than previously expected. Officials agreed that further positive data was needed before such a decision be taken, though the hint of hike hit gold.

“The market interpreted the minutes as there being a greater possibility of a rate hike in the near future,” Wallace Ng, a Shanghai-based trader at Gemsha Metals Co., said for Bloomberg.

The Fed decided to keep the US benchmark interest rate unchanged at 0.25% at its July meeting. A higher borrowing rate would increase the value of the dollar, pressuring gold.

The US Dollar Index, which measures the greenback’s strength against other major currencies, is at a one-year high after adding ~1% over the past four sessions.

“Gold had already been under pressure from the dollar. Once it broke below the 200-day moving average near $1,284, there was heavy selling,” one precious metals trader said for Reuters.

Since gold, like many other commodities, is mostly traded in dollars, the value of the US currency plays a major role in the metal’s investment appeal, with a stronger dollar lifting the price of gold to foreign currencies and vice versa.

EU, US data

In Europe, Frances manufacturing sector contracted at a faster pace, data by Markit showed, with Frances preliminary manufacturing PMI sliding to 46.5 in August from 47.8 in July. If confirmed, this would be the lowest since May 2013. Analysts had expected a flat reading. Values below the threshold of 50 indicate a contraction in the sector.

Germanys manufacturing sector, however, outperformed economists projections, with the flash German manufacturing PMI registering at 52.0, compared to 52.4 in July, but beating predictions for a drop to 51.8. If confirmed, this would be the 14th straight month of expansion. Later, Bloc-wide services and factory PMIs will be posted, with expectations of a slowdown in growth for both sectors in the euro economy.

Later today the US will post several economic gauges as well. Existing home sales, jobless claims, manufacturing PMI and Philly Fed PMI will all be reported, as traders, like some of Feds policy makers, seek further confirmation of the US economic recovery. Positive readings will further boost the dollar and pressure gold.

The yellow metal was, however, supported by ongoing conflicts in Ukraine and the Middle East, which prompt some investors to seek safety in gold.

Ukraine, Gaza

Fighting in eastern Ukraine continued with high intensity on Wednesday, as government troops battle with pro-Russian separatists. Battles left at least 34 civilians dead on Tuesday alone, the BBC reported, bringing the estimated death toll to over 2 100, while a further 5 400 people were injured.

Meanwhile, the controversial Russian aid convoy was given a green light by Kiev, though it is still not moving in, as authorities in Kiev and Moscow await clearance by the International Committee of the Red Cross (ICRC). Both sides had asked the ICRC to mediate the humanitarian aid mission.

The Red Cross had still not been given security guarantees, officials said, which the ICRC require in order to liaise the Russian supplies with civilians in embattled zones in eastern Ukraine.

“Such guarantees for the ICRC should be provided, first of all, by the terrorists groups controlled by Russia, as well as by Russia itself,” Kiev said.

Elsewhere, Israeli PM Benjamin Netanyahu pledged to see the military campaign in Gaza through “with all means necessary” and until the safety of Israel is secured, as Hamas-fired rockets continued landing in Israel on Wednesday.

The remarks come after yesterday the Israeli military bombed a residence in Gaza, presumed to house Hamas military leader Mohammed Deif. The strike left his wife and young son dead, while he was said to have been elsewhere at the time, sparing his life.

Israel justified the strike on Wednesday, calling Mr Deif a “legitimate target”.

Yaakov Perry, Israels science minister and former security service chief, said he was “convinced that if there was intelligence that [Mr Deif] was not inside the home, then [Israel] would not have bombed it”.

Early on Thursday, Israel carried out more airstrikes on houses in Gaza, killing several high-ranking Hamas commanders, the Palestinian authority said.

The latest exchanges of fire between Hamas, which controls Gaza, and Israel come after peace talks brokered by Egypt crumbled. The principal demand by Israel that Gaza must demilitarize is dismissed by Hamas, while Israel refuses to ease the blockade on the Palestinian enclave and demands it has control over its borders in any case.

Meanwhile, Amnesty International and Human Rights Watch accused Israel of disallowing their members from entering Gaza to evaluate the plausibility of committed war crimes by both sides.

The conflict in Gaza has claimed more than 2 000 Palestinian lives, mostly civilians, and 66 Israelis since flaring back to life some six weeks ago.

Assets at the SPDR Gold Trust, the largest exchange-traded gold fund, added ~1 ton on Wednesday, reaching the highest level in a month and logging the fourth straight day of gains. Increasing volumes at the fund signal higher investor interest in gold, seen as a safe haven in times of economic or political upheaval.

Technical support and resistance levels

According to Binary Tribune’s daily analysis, December gold’s central pivot point on the COMEX stands at $1 294.4. In case futures manage to breach the first resistance level at $1 300.1, the contract will probably continue up to test $1 305.0. In case the second key resistance is broken, the precious metal will likely attempt to advance to $1 310.7.

If the contract manages to breach the first key support at $1 289.5, it will probably continue to slide and test $1 283.8. With this second key support broken, the movement to the downside may extend to $1 278.9.