IGI Securities Limited – Commodity News

Karachi, March 08, 2019 (PPI-OT): Gold

Technical

Gold prices traded sideways, in a tight range despite a more dovish than expected ECB decision. With that, the US dollar rallied rather swiftly. However, the EUR/USD pair does have a significant amount of support near the 1.12 level that has held, and that of course provided the relief that markets like gold needed. All things being equal, it looks as if the $1275 level continues to be massive support. Prices are also oversold in the short-term. The fast stochastic is printing a reading of 8, below the oversold trigger level of 20, which could foreshadow a correction. It would be on the sidelines until Monday morning because of this and all of the risks that could be associated with an explosive move. The trajectory of the fast stochastic is flat and the index generated a crossover sell signal.

Highlights

The precious metals are being pressured by a rally in the U.S dollar index to a new 2.5-month high

Short-term support for gold comes in at $1,280, while resistance is seen around $1,300

A weaker dollar makes dollar-denominated assets such as gold cheaper for foreign buyers

The precious metals bulls are watching the selling pressure in the U.S stock market today

Gold is highly sensitive to U.S interest rates as it increase the opportunity cost of holding non-yielding bullion and boost the dollar

Fundamentals

Gold prices steadied yesterday ahead of a European Central Bank policy meeting expected to present a cut in economic growth forecasts, with investors also awaiting U.S jobs data.

Spot gold was flat at $1,285.94 an ounce, traded close to a more than five-week low hit this week. U.S gold futures were down 0.1 percent at $1,286.50. But at these levels, gold is still very supported at $1,275 and $1,285.

Global shares were stuck in their worst run of the year and the euro took a breather as investors’ awaited news from the ECB, which could also signal fresh stimulus for euro zone banks in an effort to stop an unexpected slowdown from becoming a downturn.

The dollar is expected to stay firm for a while. It gained against the Euro overnight and rose to a near three-month peak after the European Central Bank postponed an interest rate hike. U.S non-farm payrolls for February that is due later in the day may also support the dollar.

Whether the dollar can remain on an uptrend in the long-term is debatable, but for now a strong U.S jobs report would provide further boost for the currency.

Investors have now turned their attention to the U.S non-farm payrolls report on Friday, which could provide further signals on the strength of the economy and how it would affect the Federal Reserve’s monetary policy.

Also supporting gold was strong buying from central banks with China, increasing its gold reserves to 60.260 million fine troy ounces in February from 59.940 million troy ounces at end-January.

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