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IGI Securities Limited – Commodity News

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

Technical

Gold markets were a bit choppy during the trading session on Monday, as we continue to see a lot of noise. The $1325 level above is massive resistance, and I think it’s only a matter of time before we break above there. However, in the short term we are starting to see a bit of US dollar strength, and that works against the value of gold in general. We continue to pull back slowly, and occasionally, offering a bit of value. If you add to your goal position slowly, you can ride out a lot of the volatility that is inherent in this market. I would direct your attention to the gap just above the $1300 level, because I think that is the most important sign of bullishness on the chart. The $1325 level above is going to continue to offer resistance, but it has been broken before, and it certainly will be broken again. With Monday being a bit of a “risk off” situation and the US dollar rallied.

Highlights

Gold dipped yesterday, retreating from last week’s three-and-a-half month high

The Dollar clawed back some ground against the buoyant euro

Investors bet on further US rate hikes in 2018 after Friday’s jobs data

San Francisco Fed president John Williams said on Saturday that the Fed should raise rates three times in 2018

Gold is highly sensitive to rising U.S interest rates, as these increase the opportunity cost of holding non-yielding bullion

Fundamentals

Gold prices inched down today in Asian trading session amid expectations for more US interest rate hikes this year. Spot gold was down 0.2 per cent at $1,317.86 an ounce. Last week, prices touched their strongest since Sept. 15 at $1,325.86.

US gold futures were down 0.1 per cent at $1,318.80 an ounce. The dollar hit a more than one-week high against a basket of other major currencies on Monday. It was steady at $92.342 earlier today.

Investors are betting on further US interest rate hikes after Friday’s payrolls data did nothing to challenge the outlook for monetary policy tightening by the US Federal Reserve.

Atlanta Fed President Raphael Bostic, who is a voting member of the central bank’s policy board, said on Monday that two hikes might be needed in 2018, in light of weak price pressures.

Gold will be under pressure in the short term as the dollar will strengthen on US tax reforms and rate hike expectations. However, the market will get used to the rate hike expectations soon and the dollar will lose its strength, pushing gold higher.

We can expect prices to go past 2017 highs in the second half of 2018. Gold is highly sensitive to rising US interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

Spot gold may test resistance at $1,329 per ounce, as suggested by a Fibonacci retracement analysis and a triangle, according to Reuters technical analyst Wang Tao. Gold should see resistance at the recent low of $1,315 and the psychological $1,300 level below that.

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