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IGI Securities Limited – Commodity News

Karachi, January 16, 2018 (PPI-OT): Gold

Technical

The gold markets have rallied a bit during the trading session on Monday, but keep in mind that the market is thin due to Americans celebrating the Martin Luther King Jr. birthday. Because of this, volume is an issue and is very likely that the moves will be bullish longer- term, but pullbacks should be thought of as buying opportunities. The $1325 level underneath should be supportive, and the absolute bottom of the uptrend is the $1300 level. As the US dollar continues to be sold off drastically, and of course favours gold as it is a bit of an “anti-dollar trade.” I believe that breaking above the $1350 level should be a bullish sign, and a move above that level should send this market to the $1375 level next, and the longer-term target that I have had for some time, $1400. I think that every time we pull back, people will be looking at it as an opportunity to pick up value.

Highlights

Gold fell yesterday from the previous day’s four-month high

The U.S Dollar clawed back some lost ground after hitting a three-year low against a currency basket

Gold’s move lower snapped four straight days of gains in the metal

Dollar weakness has calmed down, and that is why gold is retracing lower

Gold remained relatively firm in the face of three U.S interest hikes in 2017, but could suffer if these continue

Fundamentals

Gold prices edged higher today to hold just below a four-month high touched in the previous session, supported by a weaker U.S. dollar languishing near three-year lows.

Spot gold was up 0.1 percent at $1,340.98 an ounce, after touching its strongest since Sept. 8 at $1,344.44 on Monday. U.S. gold futures rose 0.4 percent to $1,340.80 an ounce.

Gold seems to be moving higher on account of rising inflationary expectations and a steep drop in the dollar. We are not sure if gold could withstand the higher yield environment going into 2018, especially if the dollar eventually reverses course. In addition, we don’t see the recent spike in U.S. inflation lasting.

The dollar index, which measures the greenback against a basket of currencies, fell on Monday to its lowest since December, 2014 at 90.279. It was last down 0.6 percent at 90.417.

The euro stood near a 3-year peak on rising expectations that the European Central Bank could pare its monetary stimulus. ECB rate-setter Ardo Hansson on Monday said the central bank could end its bond purchase scheme in one go after September if the economy and inflation develop as expected.

The dollar has weakened as markets grow increasingly confident that a global recovery would outpace U.S. growth and prompt other major central banks, led by the ECB, to unwind their easy money strategy faster than has been expected.

We are likely to see further short squeezes over the near-term as the metal gold edges toward $1,350 and above this the September 2017 high around $1,357 will be the ultimate target for bulls. Supportive interest around $1,330 should restrict any further declines.

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