IGI Securities Limited – Commodity News

Karachi, June 20, 2018 (PPI-OT): Gold

Technical

Gold markets fell again yesterday, breaking through significant support at the $1275 level. This is an area that has offered support more than once, so breaking down through there is of course a negative sign. However, one has to believe that sooner or later value hunters will return. The strengthening US dollar in the Forex market certainly has played a certain amount of part two the selloff in gold, as it takes less of those US dollars to buy gold. By breaking through the $1275 level, It has seen significant support broken through, but as I record this it looks as if it is trying to bounce a bit, and therefore recover much of the losses. The market will continue to churn back and forth as it worry about the trade tariffs between the United States and China. This market will continue to struggle to keep gains, but it might find the market trying to form some type of bottoming pattern eventually.

Highlights

Gold traded in a narrow range today, near a six- month low hit in the previous session

A firm dollar was keeping gold prices under pressure

The rising prospect of further U.S Federal Reserve interest rate increases placed further pressure on gold

Gold prices broke below the May low at $1,281.76 per ounce, the lows from the last couple of days

Rate hikes would limit gold because they make non interest-bearing commodities less attractive to investors

Fundamentals

Gold fell to a near six-month low and platinum hit its lowest since February 2016 today as a stronger greenback was overwhelmed by safe-haven buying, spurred by fears of a trade war between the world’s two top economies.

The U.S dollar index touched its highest since July 2017 against a basket of currencies, as U.S President Donald Trump threatened to impose a 10 percent tariff on $200 billion of Chinese goods and Beijing said it would retaliate.

The trade spat reinforced concerns about global growth and triggered a selloff in equities, while boosting safe-haven currencies such as the yen and the dollar. Typically, gold is used by investors as a place to park assets during times of global uncertainty.

Dollar’s inverse relationship with bullion, a stronger greenback makes dollar- denominated assets more expensive for holders of other currencies, which can often override other factors.

Spot gold fell 0.1 percent at $1,276.19 per ounce, having touched its lowest since Dec. 22 at $1,270. Spot gold may test a support at $1,268 per ounce, with a good chance of breaking below this level and falling more towards the next support at $1,258. U.S gold futures for August delivery settled down $1.50, or 0.1 percent, at $1,278.60 per ounce.

Gold is not doing its part as a safe-haven asset compared to others like the yen and U.S Treasury yields. Gold prices generally gain momentum during times of uncertainty as it is considered a safe place to park assets.

The dollar steadied against a basket of currencies, as risk aversion sparked by concerns over a worsening trade feud between Washington and Beijing ebbed, although lingering worries about the tariff rift kept currencies on edge.

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