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IGI Securities Limited – Commodity News

Karachi, January 04, 2018 (PPI-OT): Gold

Technical

Gold markets continue to be choppy, but I think we will continue to go to the upside, perhaps looking towards the $1325 level above, and then eventually the $1350 level. I think that pullbacks offer value, as the US dollar continues to fall in general. That translates to higher pricing in the precious metals markets, which of course gold is the benchmark. I think that the $1300 level below should be the “floor” going forward, and that being the case it’s likely that we will not build a breakdown below there. If we did, that could change everything, but in the meantime, I think that you should look at it as the support. Longer-term, I anticipate that the market is going to go looking towards the $1400 level, as it is a major inflection point on the longer- term charts. With the jobs number coming out on Friday, it’s likely that we will get a bit of action in the US dollar towards the end of the week.

Highlights

Gold prices eased early today, extending losses from the previous session

The precious metal retreated due to a firmer U.S Dollar on expectations of further U.S interest rate hikes

The yellow metal hit its highest since Sept. 15 at $1,321.33 yesterday

Gold fell further after the Fed released minutes of its December policy meeting

Although the Federal Reserve meeting minutes showed some disagreement between policy hawks and doves

Fundamentals

Gold steadied today in Asian session after hitting a 3-1/2 month high in the previous session as profit-taking set in amid worries over looming U.S. rate hikes, while palladium touched its highest ever levels on tight supplies and bets on growing demand.

The U.S Dollar hit a 3-1/2 month low versus the euro amid optimism about the euro zone economy but gold, which tends to move counter to the greenback, was unable to capitalise on the dollar weakness given its recent gains.

Gold is beginning to look over-valued. Our fair value for gold assuming a U.S rate hike in March and June is around $1,230 so at current prices it looks expensive, said James Butterfill, head of research at ETF Securities.

He added, however: Gold is being used very much as an insurance policy against geopolitics and uncertain monetary policy, that’s why we think its likely to continue to range trade between $1,200-1,300 over the next six months.

Spot gold edged up 0.1 percent at $1,313.68 an ounce, while U.S. gold futures dropped 0.3 percent to $1,314.80 an ounce. Spot gold marked its highest since Sept. 15 at $1,321.33 on Wednesday, but then dropped as the dollar recovered after minutes from the Federal Reserve’s December policy meeting bolstered expectations for more U.S interest rate hikes.

The U.S currency was also given a boost on Wednesday by strong manufacturing and construction data. Gold is highly sensitive to rising U.S. interest rates as they increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

People are looking to lock in some gains after a pretty strong rally over the past weeks. Geopolitical issues have certainly been a huge power point of gold’s rally into the year-end, it is going to be a U.S dollar type story going forward with markets taking a neutral view.

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