The two-day rally in gold prices ran into resistance Friday morning, a sign the Fed-induced rally was beginning to waver.
Gold for December settlement, the most actively traded futures contract, fell $3.30 or 0.2% to $1,341.40 a troy ounce at 2:11 am GMT, where it is trading near a key resistance area. Investors are looking for a clean break above $1,340.00 to make way for a re-test of the September settlement high around $1,354.00.
Gold prices have rallied nearly 2% since the Federal Reserve decided to leave interest rates unchanged. Analysts warn that continued upside for gold futures may be limited now that a December rate hike is firmly in play. According to Fed Fund futures, traders are pricing in a nearly 60% chance of liftoff by year-end.
Bullion remains highly exposed to US interest rates and a move by the Fed is widely expected to trigger selling pressure on the commodity. Higher interest rates increase the opportunity cost of holding non-yielding assets, such as gold. Tighter monetary policy will also fuel demand for the US dollar, which is highly sensitive to rate-hike speculation.
The dollar declined for a second consecutive day Thursday and has fallen more than half a percent against other major currencies since Wednesday afternoon.
The markets can expect fewer catalysts on Friday. A preliminary PMI report from Markit Economics will provide insights into the US manufacturing sector ahead of next week’s reports on durable goods orders and revised second quarter GDP.
A continuation of the defensive dollar tone over the past 24 hours, coupled with downward pressure on bond yields, has continued to provide underlying support to gold prices.
US jobless claims data was stronger than expected with a decline to 252,000 in the latest week from 260,000 previously, which continued to suggest labour-market strength.
The existing home sales data was weaker than expected with a decline to an annual rate of 5.33mn for August from a revised 5.38mn previously.
The overall data impact was limited with markets still focussing on the fact that interest rates would remain at very low levels in the short term and debating why the Fed decided against raising rates.
There was further support for bond markets during the day with US 10-year yields declining to around 1.61% as European yields also moved sharply lower.
The dollar remained firmly on the defensive against major currencies, although EUR/USD did hit resistance close to 1.1250.
The combination of a weak US dollar and downward pressure on bond yields provided further support to gold prices and there was a sharp upward move in US trading to a peak above $1,340 per ounce.
Eurozone PMI data on balance was slightly disappointing with weakness in the services sector, although there was an improvement in manufacturing, which should underpin confidence in the global outlook.
There was selling interest at higher levels with prices retreating back below $1,335. The downside remained firmly supported with the dollar still unable to gain any significant traction and a sharp dollar reversal will be needed to jolt investor sentiment.
Gold prices held just below $1,340 at Friday’s US open with prices set for the largest weekly advance in two months.
The latest COT data on non-commercial gold positioning will be watched closely over the weekend for further evidence on underlying speculative interest. Holdings in the SPDR Gold Trust increased for the second successive day on Thursday, which suggested underlying investor interest.
The price of silver pulled back Friday, but was on track for a large weekly gain as the Federal Reserve provided a strong trading catalyst for precious metals.
December silver futures fell 17 cents, or 0.8%, to $19.93 a troy ounce Friday morning on the Comex division of the New York Mercantile Exchange. The futures price traded within a range of $19.84 and $20.03.
Despite the loss, silver was on track for a weekly gain of around 7%. The grey metal had declined nearly 4% the previous week.
Gold’s ascent also stalled Friday around an important technical hurdle. December gold futures slipped $2.40, or 0.2%, to $1,342.30 a troy ounce.
The US dollar was unchanged against a basket of currencies Friday, consolidating after a sharp two-day drop. Precious metals are priced in the US dollar, making them highly sensitive to fluctuations in the greenback.
In economic data, Eurozone economic growth slowed to a 20-month low in September, pointing to another quarter of subdued expansion. The Markit Eurozone flash composite PMI slipped to 52.6 in September from 52.9 the previous month. Any reading above 50 signals expansion in economic activity.
According to Markit, the latest PMI figures put the Eurozone economy on pace to grow just 0.3% in the third quarter.
Global stock prices booked losses Friday, as markets pulled back from central bank-inspired gains. The Stoxx Europe 600 was down 0.8% by midday. All of Europe’s benchmark averages were in negative territory.
In Asia, Japan’s NIkkei and the Hang Seng in Hong Kong each fell 0.3%. Mainland China’s Shanghai ShenzhenCSI 300 Index fell 0.5%.
US stock futures were down across the board in pre-market activity, pointing to a soft start to the day on Wall Street.
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