IGI Securities Limited – Commodity News

Karachi, January 10, 2018 (PPI-OT): Gold

Technical

Gold markets continued to drift a little bit lower during the trading session on Tuesday, as we have run out of steam. I think there is massive amounts of support near the $1300 level though, so it’s only a matter of time before the buyers get involved. If we were to break down below the $1300 level, it’s likely that the market could drift even lower. I like the idea of buying gold on short-term pullbacks, and I think that eventually we will see bullish pressure reaching to the upside. If we can break above the $1325 level, I think that the market is free to go to the $1350 above. I think that gold markets will continue to move in response to the US dollar and what it’s doing, and over the last couple of days it has strengthen, which of course is negative to gold traders. I don’t have any interest in shorting, at least not until we break down significantly below the $1300 level.

Highlights

Gold edged lower yesterday, weighed down by a stronger U.S dollar

The dollar was up 0.2 percent against a basket of major currencies yesterday

Investors bet on further US rate hikes in 2018 after Friday’s jobs data

The euro is being weighted down on concerns about upcoming Italian elections, problems forming a German government

Global gold-backed, exchange-traded funds added 197.5 tonnes in 2017, an 8.4 percent increase, the World Gold Council said

Fundamentals

Gold jumped to its highest in nearly four months as the dollar tumbled to a six- week low versus the Japanese yen and slid against the euro, lifting assets priced in the U.S. currency and offsetting a rise in global yields.

The dollar fell as much as 1.2 percent against the yen after the Bank of Japan’s move to trim its long-dated government bond purchases earlier this week, putting the U.S. currency on track for its biggest two-day drop in nearly eight months.

The BoJ move also lifted bond yields across the world, generally a negative factor for gold as it increases the opportunity cost of holding non-interest bearing bullion. However, the impact of the dollar’s fall outweighed that factor.

Spot gold was up 0.9 percent at $1,324.40 an ounce, having earlier touched its highest since Sept. 15 at $1,326.56. U.S. gold futures for February delivery were up $11.50 an ounce at $1,325.20.

The story in the markets right now is most certainly the yen story, and that is going to provide enough support to gold for the yield story to be ignored. We are seeing underlying demand for gold here as the year kicks off.

The dollar’s slide against the yen also saw it move lower against the euro, with the single currency up 0.6 percent versus the U.S. unit. Major government bond yields hit multi-month highs on Wednesday as investors re-evaluated the likelihood of continued easy-money policies by the world’s major central banks following the BoJ move. The 10-year U.S. Treasury yield hit 2.57 percent for the first time since March.

Among other metals, palladium was down 0.1 percent at $1,098.50 an ounce, after hitting a record high on Tuesday at $1,111.40. Tightening emissions standards and a switch away from diesel cars to more palladium-heavy gasoline models has shored up demand expectations.

   

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