Gold futures pause drop on US rates outlook, GDP data in focus

Gold steadied in early European trading on Thursday following three days of losses as a Fed official raised speculations a US rate hike might be delayed beyond September, while a rebound in Asian shares and upbeat US economic data weighed on the metal.

Comex gold for delivery in December traded 0.18% higher at $1 126.6 per troy ounce at 06:34 GMT, shifting in a daily range of $1 128.4 – $1 122.3. The contract fell 1.2% on Wednesday to $1 124.6, having touched an intraday low of $1 116.9, a one-week trough. The price is down 2.8% for the week so far.

Led by an overnight rebound in US stocks, Asian shares rose on Thursday, reducing the need for investors to seek safety in safe haven assets such as gold. A stabilization in the global markets favors the case of a near-term US interest rate increase, which damages the precious metals appeal as it yields returns only through price gains, while owners of assets that pay interest benefit from a hike.

The recent turmoil has lowered the probability of the Federal Reserve raising borrowing costs at its next policy meeting in September, but it hasnt been ruled out entirely. Still, comments by US officials have led investors to believe a move in October or December is more likely. According to Bloomberg data, traders rate a 26% chance of the Fed hiking in September, down from 40% at the end of July, but are pricing in a 50% chance for action to be taken by the end of the year.

New York Fed President William Dudley said on Wednesday that a September increase looks “less compelling” given the threat posed to the US economy by recent market turmoil. Atlanta Fed President Dennis Lockhart said earlier this week that 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.

Still, US economic data across the board continue to come in solid. Durable goods orders expanded in July, according to a Wednesday report, defying analysts projections for a contraction, while earlier data had shown that sales of new homes rebounded last month and services sector activity posted solid growth in August.

The US dollar continued to recover on Wednesday, with a gauge measuring its strength versus a basket of major trading peers jumping for a second day. The US dollar index contract for settlement in September was flat at 95.135 at 06:34 GMT today after it closed 0.6% higher on Wednesday.

Investors are eyeing key US economic data today for further trading cues. A second estimate of US GDP growth for the three months ended June will likely show that the worlds biggest economy expanded by 3.2%, up from an initial reading of 2.3% and a 0.6% growth in the first quarter. Also due today are weekly initial jobless claims numbers, projected to have fallen slightly, and pending home sales in July, forecast to have rebounded from a contraction in June.

Reflecting the pause in safe haven demand, assets in the SPDR Gold Trust, the biggest bullion-backed ETF, were unchanged for a second day on Wednesday at 681.1 tons, having rebounded from August 7ths 7-year low of 667.69 tons during the stock market rout. 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 $1 129.2. If the contract breaks its first resistance level at $1 141.4, next barrier will be at $1 158.3. In case the second key resistance is broken, the precious metal may attempt to advance to $1 170.5.

If the contract manages to breach the S1 level at $1 112.3, it will next see support at $1 100.1. With this second key support broken, movement to the downside may extend to $1 083.2.

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.