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IGI Securities Limited – Commodity News

Karachi, January 08, 2018 (PPI-OT): Gold

Technical

Gold markets rallied significantly during the week, capping above the $1300 level. I believe that the market is eventually going to reach towards the $1325 level, breaking above there, and then going much higher. If we were to break down below the $1300 level, that is a sign that we may not be able to continue to go higher. Ultimately, the markets will remain very volatile, the gold markets reacting to the anti-US dollar sentiment. I think given enough time, we will not only reach towards the $1400 level above, but go much higher. The uptrend line has been reliable so far, so even if we were to break down below the $1300 level, I think there is plenty of support near the $1250 level. In other words, I have no interest in shorting gold long- term, and I think that any weakness should be thought of as a buying opportunity, but you will need to be very patient underneath $1300.

Highlights

Gold prices inched down today later in the session after the dollar firmed on expectations of further US interest rate hikes this year

January is usually a good month for gold prices and should remain so

US dollar correction, gold will likely remain firm until a March Fed hike possibility comes on the radar

The US December non-farm payrolls report on Friday was weaker than expected

Investors reckoned the US Federal Reserve would still raise interest rates multiple times this year

Fundamentals

Gold prices held steady on early in today’s Asian trading session, below 3-1/2- month highs hit last week, amid expectations of more U.S. interest rate hikes this year.

Spot gold was mostly unchanged at $1,322.73 an ounce. Last week, prices touched their highest since Sept. 15 at $1,325.86. U.S gold futures were also mostly unchanged at $1,322 an ounce. Spot gold rose for a fourth straight week last week.

The U.S December non-farm payrolls report on Friday was weaker than expected. The dollar dipped briefly, then rose as investors reckoned the data would not deter the U.S. Federal Reserve from raising interest rates multiple times this year, though at a gradual pace.

Despite weaker-than-expected data, traders overall stuck to their conviction that the Federal Reserve will raise rates at least twice this year, a Reuters analysis of fed funds futures contracts traded at CME Group suggested.

Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

China gold reserves were at 59.240 million fine troy ounces at end-Dec, unchanged vs end-Nov, the central bank said on Sunday. China’s foreign exchange reserves rose to their highest in more than a year in December and grew at a faster-than-expected pace, as tight regulations and a strong yuan continued to discourage capital outflows, data showed on Sunday.

Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.14 percent to 834.86 tonnes on Friday from 836.04 tonnes on Thursday. Hedge funds and money managers raised their net long positions in COMEX gold.

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