IGI Securities Limited – Commodity News

Karachi, December 19, 2017 (PPI-OT): Gold

Technical

Gold markets rallied a bit during the trading session on Monday, breaking above the $1260 level. By doing so, the market looks likely to go much higher, perhaps aiming towards the $1275 level next. The $1250 level underneath should offer massively supportive, so pay attention to the US dollar, as it tends to move to the opposite direction. If the US dollar continues to fall, gold should continue to rally. Right now, looks like we will probably do this. If we were to break down below the $1250 level, the market would probably drop rather rapidly, as it was established support of the last several sessions. Gold markets will react to geopolitical concerns, so if we get some type of negative headline crossing the wires, we could see gold rally. I have no interest in shorting, least not until we break below the $1250 handle. Gold markets can be rather erratic so be careful when adding to your position.

Highlights

Gold traded little changed in early session amid a steady dollar with investors monitoring the progress of the US tax reform bill

The Dollar remained mired in its recent ranges, as optimism that the US tax reform bill would pass duelled

The Bank of Japan is expected to maintain its massive stimulus programme

SPDR Gold Trust, said its holdings fell 0.84 percent to 837.20 tonnes yesterday

Minneapolis Fed President worries on weak inflation and a flattening of the yield curve

Fundamentals

Gold prices edged higher today in Asian trading session as the U.S Dollar weakened, with investors considering the potential impact of a sweeping tax legislation in the United States that Congress appeared all but certain to pass this week.

Spot gold was up 0.2 percent at $1,263.61 an ounce. U.S. gold futures rose 0.1 percent to $1,267 an ounce. Two Senate Republican holdouts agreed on Monday to support the tax overhaul backed by President Donald Trump, with the House of Representatives set to vote on Tuesday and the Senate either later on Tuesday or on Wednesday.

Passing the tax reforms and getting the bill signed this week should reasonably drag gold prices lower as it means more appetite to risk assets, higher interest rates, and higher Dollar.

However, the flattening in the yield curve could likely cap any dollar gains. Optimism surrounding the bill has helped equities surge to record highs, but the dollar remained mired in its recent ranges in subdued trade, as investors mulled over its ultimate effect on economic growth.

We are somewhat wary about gold’s upside potential here and would not be buying it at current levels as we think there are more reasons working against it at this stage than for it.

Higher equities, surging bitcoin prices, and the possibility that the tax bill could trigger a modest short-term uptick in both the dollar and U.S yields could weigh on gold.

Even as the Congress moved closer to the tax reform, outgoing Federal Reserve Chair Janet Yellen last week gave a more sobering assessment of its impact, saying a short-term bump is likely, but a longer-term boost is not. We expect prices to work higher through the headwind of firmer U.S. monetary policy.

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