IGI Securities Limited – Commodity News

Karachi, June 26, 2018 (PPI-OT): Gold

Technical

Gold markets went sideways during the trading session yesterday, as global markets continue to pay attention to the potential trade wars coming out between the United States and several other countries. Because of this, Gold doesn’t really know what to do yet as the risk appetite is all over the place. The $1275 level above continues to offer resistance, and of course the previous uptrend line will offer resistance as well. However, longer-term a lot of different things are at play. If it break down below the $1260 level, its likely that it could reach towards the $1250 level. That’s an area that should be important based upon the round figure aspect, and previous action around that number. If it do rally from here, it will be very difficult to break out to the upside for a significant move until it get clarity on the US dollar, which of course has a major influence on what happens in the precious metals.

Highlights

Gold prices finished with a loss, the precious metal marked another low year to date even as the U.S dollar, strong throughout the month

Higher rates and a stronger dollar are headwinds for commodities

Stock weakness can prove supportive for the perceived haven status of gold

Gold’s current downdraft comes as the precious metal hasn’t been treated to a typical, clear-cut haven boost amid global trade hostilities

Hedge funds cut bullish commodities bets by 14% in the week to June 19

Fundamentals

Gold prices edged lower today, pressured by prospects of rising US interest rates, while an easing dollar and escalating trade tension between the US and other major economies supported the metal.

Spot gold was down 0.1% at $1,264.34/oz, not far from a six-month low of $1,260.84 touched last week. US gold futures for August delivery were 0.2% lower at $1,266/oz.

Rising trade tensions should have (but did not) help gold’s cause all that much. Instead, it seems that the concern of rising interest rates, particularly in the US, continues to gnaw away at gold, as does the fact that the fund length is fleeing.

The central bank should continue with a gradual pace of interest rate rises amid a strong economy to balance its employment and inflation goals. Gold, which is highly sensitive to rising US interest rates, could suffer in the face of higher rates, as these tend to boost the dollar and push bond yields up.

The market certainly looks susceptible to some further declines until data shows any sort of weakness in the US economy in particular. A fresh round of global trade friction was again driving financial market sentiment Monday, although the issue has had a subdued impact in supporting haven gold.

Gold, usually seen as a safe store of value during economic and political uncertainty, has found only limited support from the global trade spat. Holdings of SPDR Gold Trust, the world’s largest gold-backed ETF, fell 0.54% to 820.21 tonnes.

The near-term path of least resistance is still lower for gold, but a spike in volatility due to trade concerns could easily see futures run back towards $1,300.

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