Gold futures extend decline as US rate hike remains on the table

Gold extended the biggest drop in over a month on Wednesday as Asian shares swung despite Chinas latest monetary easing as investors remained cautious of a near-term US rate hike.

Gold for delivery in December traded 0.16% lower at $1 136.5 per troy ounce at 06:54 GMT, shifting in a daily range of $1 146.0 – $1 132.4. The contract slid 1.3% on Tuesday, the most since July 20th, to settle the day at $1 138.3, dropping for a second session.

Asian stocks swung between gains and losses on Wednesday as investors assessed the effectiveness of a cut in interest rates and minimum reserve requirements by the Peoples Bank of China, with some fearing the measures would not be enough to stabilize the cooling Chinese economy and further easing would be needed.

And although stocks failed to impress, gold also remained under pressure as a US interest rate hike in September still hasnt been ruled out despite the much lower probability compared to a few weeks ago. But the metal is expected to have solid ground in the near-term amid high volatility and uncertainty in the global financial markets.

According to Bloomberg data, traders evaluate the probability of the Fed raising interest rates in September at 26%, down from 40% at the end of July. Data on Tuesday showed that consumer confidence in the US hit a seven-month high in August, with the corresponding index by the Conference Board hitting 101.5, well above a projected jump to 93.4 from an upward-revised 91.0 in July. Meanwhile, sales of new homes rebounded last month, coming in largely in line with expectations, while services sector activity posted solid growth in August, suggesting underlying economic strength that has been the basis of broad expectations for the Fed to hike this year.

Most of the recent US economic numbers have pointed to a robust recovery, supporting the view of higher borrowing costs, but inflation continuing to trail the Feds targeted level has been a lasting issue. Still, Atlanta Fed President Dennis Lockhart said interest rates will likely receive a boost “sometime this year,” even as plummeting oil prices cloud the inflation outlook. Two weeks ago, Mr. Lockhart said he was “very disposed” to a rate hike in September.

The US dollar index contract for settlement in September traded 0.41% lower at 94.155 at 06:54 GMT, shifting in a daily range of 94.325 – 93.730. The contract rose 1.3% on Tuesday to 94.544, paring a 1.7% decline the previous day which also saw the US currency gauge slide to the lowest since January.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, were unchanged at 681.1 tons on Tuesday, having rebounded from a 7-year low of 667.69 tons on August 7th. Still, holdings in the fund have shrunk by nearly 50% since peaking at at 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 $1 142.9. If the contract breaks its first resistance level at $1 151.7, next barrier will be at $1 165.2. In case the second key resistance is broken, the precious metal may attempt to advance to $1 174.0.

If the contract manages to breach the S1 level at $1 129.4, it will next see support at $1 120.6. With this second key support broken, movement to the downside may extend to $1 107.1.

In weekly terms, the central pivot point is at $1 145.3. The three key resistance levels are as follows: R1 – $1 182.2, R2 – $1 204.7, R3 – $1 241.6. The three key support levels are: S1 – $1 122.8, S2 – $1 085.9, S3 – $1 063.4.