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Gold Edge Lower; Seems Set for Second Weekly Drop

By:
Connor Moss

After recovering from monthly lows in the previous trading session, Gold turned lower from Asian session high of $1333/ounce and is currently hovering

Gold is Stable ahead of Central Banks Meetings

After recovering from monthly lows in the previous trading session, Gold turned lower from Asian session high of $1333/ounce and is currently hovering around $1322.26 as investors locked-in some profits ahead of the weekend.

On Thursday, Gold staged a remarkable recovery from a three-week low as risk-on mood eased a bit, while weakness in U.S. equities underpinned the yellow metal. In a volatile move on Thursday, Gold swung between $1310 and $1334 an ounce before finally settling just below $1330 level with 1.0% gain for the day, erasing all of its losses recorded on Wednesday.

Earlier on Thursday, the yellow metal dropped to the lowest level since June 28 as increasingly optimistic US economic outlook have now revived expectations of an imminent Fed rate-hike later this year, which strengthened US dollar and exerted pressure on dollar-denominated commodities – like gold. Moreover, in the post-Brexit calm, strong bullish momentum in global equity markets has also been one of the key factors driving investors away from safe-haven assets and has weighed on the precious metal.

On Thursday, the European Central Bank (ECB) governing council decided to make no changes to its current monetary stance and hold interest rates at record-low. The precious metal got a boost after ECB said that it intends to keep rates at current or lower levels for an “extended period” and will continue its bond-buying stimulus program at-least until March 2017. The central bank also signaled its readiness to consider adding stimulus, if necessary, when it meets in September once it assess the impact of UK’s vote to end its membership with the European Union on growth and inflation outlook.

Last week, the Bank of England also left its monetary policy unchanged but showed its intension to launch fresh stimulus measures in August in order to support UK economy from the aftershocks of Brexit. Moreover, the Japanese government is also expected to announce fresh fiscal package to the tune of 20 trillion Yen and the Bank of Japan is anticipated to announce an increase the pace of its bond-purchase program when it meets next week. At times of ultra-loose monetary policies, investors tend to move their investments into gold as a hedge against depreciating currencies.

Despite of the recent corrective move, the precious metal was still higher by near $100 from yearly low level of $1200 mark touched during May end and is up over $50 since the historic Brexit vote that triggered a turmoil in global financial markets. Nevertheless, the yellow metal is still set to post its second weekly drop.

Important Technical Levels

On the immediate downside, drop below weekly lows support near $1310 level seems to drag the metal below $1305-1300 support, towards testing 50-day SMA support near $1288-85 region.

Conversely, the commodity seems to build on to bullish momentum above $1335 resistance, towards its next major resistance near $1350 region.

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