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IGI Securities Limited – Commodity News

Karachi, January 12, 2018 (PPI-OT): Gold

Technical

Gold markets went sideways initially during the trading session on Thursday, but then reach towards the $1325 level above, an area that offered resistance. If we can break above the top of that area, I think that the market will continue to go towards the $1350 level, and then eventually higher than that. Ultimately, I think that short-term pullbacks offer buying opportunities, and that the $1300 level underneath is the “floor.” I also recognize that the market is going to be highly sensitive to what goes on with the US dollar, which seems to be struggling again during the Thursday session. Longer-term, I think there is a significant amount of bearish pressure on the US dollar, and that should eventually push gold markets higher. I would be a bit careful with leverage though, because gold markets can chop around quite wildly. If we were to break down below the $1300 level, that would be a negative sign.

Highlights

The price of gold rose to its highest in four months in Asia trading today as the US dollar continued to weaken

The minutes of the European Central Bank’s December meeting released yesterday were viewed by the market as hawkish

A stronger Euro potentially boosts demand for gold by making dollar-priced bullion cheaper

Gold has to breach the recent high of $1,327, above which prices can touch $1,360

Producer prices in the United States fell for the first time in nearly 1-1/2 years in December

Fundamentals

Gold prices rose for a third session today to hit their highest since September, with a slump in the U.S. dollar helping drive bullion towards its fifth-straight weekly gain.

Spot gold had edged up 0.5 percent to $1,328.84 an ounce, after earlier touching its highest since Sept. 15 at $1,330.34. The metal is up 0.7 percent so far this week and is set for its longest run of weekly gains since a streak that finished in the week ending April 14.

U.S. gold futures were up 0.5 percent at $1,329 an ounce. The dollar index, which measures the greenback against six major currencies, fell to its lowest since Sept. 20 at 91.689.

The Euro jumped against the dollar as the European Central Bank signalled it could begin to wind down its 2.5 trillion euro ($3.01 trillion) stimulus programme this year. A stronger euro potentially boosts demand for gold by making dollar-priced bullion cheaper for European investors.

There is a lot of doubt on how long prices have to run from here. Prices have risen despite the Federal Reserve raising interest rates and the main driver has been the U.S. dollar, which we continue to see help gold run higher in the first quarter.

There was some strong buying out of China on Friday suggesting some physical demand ahead of Lunar New year. The greenback was also under pressure after data showed producer prices in the United States fell for the first time in nearly 1-1/2 years in December amid declining costs for services.

Weak inflation at the producer level could add to concerns that the factors restraining inflation could become more persistent and result in the U.S. Federal Reserve being more cautious about raising interest rates this year. Higher rates could dent demand for non-interest-paying gold.

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