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IGI Securities Limited – Commodity News

Karachi, January 17, 2018 (PPI-OT): Gold

Technical

Gold markets pulled back slightly during the Tuesday session as traders came back from the Martin Luther King Jr. holiday. Ultimately, I believe that the $1325 level is an area where you would expect to see a lot of support based upon previous resistance, and of course a massive candle on the hourly chart from a couple of sessions ago. I believe that the $1350 level above is significant resistance, but I also believe that we will eventually break above there. I believe in buying on the dips, and I also believe in adding slowly as the volatility in the precious metals markets will almost undoubtedly pick up. The markets continue to be an opportunity just waiting to happen, as the US dollar in general has been beaten up. During the Tuesday session, the US dollar did rally a bit, and that’s part of what’s causing this pullback. Once we get above the $1350 level, the market then goes to the $1375 level.

Highlights

Gold fell yesterday as the 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

Dollar weakness has calmed down that is one reason why gold is retracing lower

In general the precious metals complex and other commodities are facing downwards

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

Fundamentals

Gold prices reversed early gains to trade slightly lower today in Asian trading session as the U.S. dollar recovered from a three-year low against a basket of currencies.

Spot gold prices were down 0.3 percent at $1,334.86 an ounce, after rising to $1,343.91 earlier in the session. It touched its strongest since Sept. 8 at $1,344.44 on Monday. U.S. gold futures were down 0.1 percent at $1,335.40 an ounce.

The dollar index was up 0.3 percent at 90.684, after dropping to its lowest since December, 2014 to 90.113 early in the session. Most of the move in gold has been dollar denominated. We have seen very little change in ETF holdings. There is very little change in perception of gold in terms of safe haven demand.

The outlook for gold in our view is down due to the lack of physical demand in Asia and the outlook for rate hikes this year is a headwind for gold. The U.S. Federal Reserve is widely expected to raise interest rates multiple times this year, although at a gradual pace.

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.

Asian stocks stepped back from a record high on Wednesday as the region’s resource shares were hit by falling oil and commodity prices while digital currencies tumbled on worries about tighter regulations.

While the U.S. dollar remains the most prominent driver of momentum, we cannot overlook the meltdown in Bitcoin on the back of regulatory oversight adding to the gold risk premium. Spot gold targets its Sept. 8, 2017 high of $1,357.54 per ounce, according to Reuters technical analyst Wang Tao.

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