IGI Securities Limited – Commodity News

Karachi, August 09, 2018 (PPI-OT): Gold

Technical

Gold markets initially tried to rally during the trading session yesterday but found the downtrend line a bit too stringent to continue. By doing so, the market looks very susceptible to selling pressure. Economists believe that the $1200 level underneath will continue to be major as far as importance is concerned, but in the short term it’s probably a bit of a range bound market with a short-term negative bias. If it can break above the downtrend line that it has marked on the hourly chart, it’s possible that it could go much higher. Alternately, if it break down below the $1200 level on a daily close, then it could open the door for a move down to the $1140 level. Overall, this is a market that is going to be very noisy and difficult. A break out to the upside could lead this market right back to the $1225 level. Regardless, expect a lot of noise over the next couple of days.

Highlights

Gold prices were steady today, after gaining for two straight sessions

Dollar hit a three-week high, lost ground versus a basket of currencies

Gold prices can benefit from uncertainty, as the metal is traditionally seen as a safe place to park assets, alongside the yen

Gold is expected to remain weak on rising U.S interest rates and strong demand for U.S Treasury bonds as a safe haven from global trade tensions

The Fed is going to raise rates further this year, that will push up the dollar, a negative for gold

Fundamentals

Gold prices were mostly steady in range-bound Asian trade today, after gaining for two straight sessions, with a strong dollar weighing on upside momentum. Gold prices are down more than 10 percent since April. Higher interest rates raise the opportunity cost of holding gold.

Spot gold was up 0.1 percent at $1,214.23 an ounce, having gained 0.2 percent in the previous session. U.S gold futures were up 0.1 percent at $1,222.2 an ounce.

The U.S dollar today stabilised versus the yen after earlier in the session dropping to a two-week low ahead of trade talks between the United States and Japan and amid speculation over when the Bank of Japan will exit its ultra-easy monetary policy.

The greenback was steady versus the yuan and up 0.1 percent against other major rivals. The U.S economy is strong enough to warrant further interest rate increases by the central bank.

It seems that investors are still thinking the rate hike is going to come, so gold is not really a good investment for now. If there are expectations of faster rate hikes or higher inflation, then gold prices will see further downside pressure.

The U.S Federal Reserve has raised benchmark interest rates two times so far this year and targets two more hikes in the near-term with the next one slated to come in September. Higher U.S rates tend to boost the dollar and treasury yields, adding pressure on greenback-denominated, non yielding gold.

Meanwhile, Asian shares edged higher today, as a rally in Chinese stocks helped offset the latest bout of Sino-U.S trade tensions, while Russia’s rouble tumbled as the United States slapped fresh sanctions on the country.