IGI Securities Limited – Commodity News

Karachi, July 11, 2018 (PPI-OT): Gold

Technical

Gold markets initially fell during the trading session yesterday, reaching down to the $1250 level, an area that has been important several times. Economists believe that the market will eventually find buyers to push higher, but it would also point out that it had recently broke down below a significant uptrend line. Market players believe that longer-term it will go much higher, but right now it’s likely that it will continue to see a lot of volatility. This makes sense, because the Forex markets are all over the place, and of course the US dollar has been a major driver of where gold goes. If it do break down below the lows of the day, then it is looking towards $1240 level, and could go as low as the $1200 level underneath, which is massive support. Gold will continue to be a short-term traders market overall, with about every $10 offering support and resistance.

Highlights

Gold prices fell, weighed down by a stronger U.S dollar, and may re-test a seven-month low

A strengthening dollar proved the most significant headwind for precious metal

Strong stocks, overseas buyers need dollars to pay for stocks, so gold again becomes expensive

A stronger dollar makes greenback-denominated gold more expensive for holders of other currencies

For gold, support looks to be holding well around $1,250 but the USD could break higher and this is the biggest risk for gold

Fundamentals

Gold prices fell today as the dollar firmed against the yuan after the United States threatened to impose additional tariffs on Chinese goods, escalating trade tensions between the world’s two largest economies.

The Trump administration said, it would slap 10 percent tariffs on an extra $200 billion worth of goods imported from China. A firmer greenback makes bullion expensive for holders of other currencies as the commodity is priced in dollars.

Spot gold fell 0.3 percent at $1,250.90 an ounce. In the previous session, bullion hit a one-week low at $1,246.81 an ounce. U.S gold futures for August delivery were 0.3 percent lower at $1,251.90 an ounce.

Spot gold may break a support at $1,247 per ounce and fall more towards the next support at $1,237 as it has completed a bounce from the July 3 low of $1,237.32.

If this dollar strength continues, it could see another test of $1,240, the lows from last week and mid-December, a crucial technical level. Bullion has been on a downtrend since touching $1,365.23 on April 11, then the strongest since Jan. 25.

The dollar’s index against a basket of six major currencies was up 0.33 percent at 94.386 after dropping to its lowest since mid-June on Monday. Investors were also awaiting developments on the trade war between China and the United States.

Downdraft also comes as the Federal Reserve is slated to normalize U.S monetary policy, lifting benchmark interest rates at least once more in 2018, with higher rates potentially creating more headwinds for gold as the dollar bucks up and as the 10-year Treasury rate climbs, eroding some gold demand.