Gold Steady after BOJ-led Volatility

Gold prices rose during Asian trading session on Friday, supported by volatility in global financial markets after the Bank of Japan decided to expand its monetary stimulus through a modest increase in purchases of exchange-traded funds. The markets, however, were not impressed as the central bank left rates unchanged at -0.1%, and monetary policy base at 80 trillion Yen against market expectations of pushing the rates further into negative territory to -0.3%.

The precious metal witnessed a volatile swing, touched a session low of $1328 but recovered quickly to $1334 region. As the volatility subsided, the yellow metal started losing its safe-haven appeal and eased, with spot prices currently quoting around $1334, nearly unchanged from yesterday’s closing level.

On Thursday, spot gold initially inched higher to a two-week high level of $1345, adding on its bullish spike late Wednesday after the Federal Reserve policy statement failed to provide any clues over the timing of next Fed rate-hike action. The yellow metal, however, lost upside momentum and erased all of its gains and ended with marginal looses at $1334.

Wednesday’s FOMC statement was deemed as dovish and investors believed that the central bank might be reluctant to raise interest-rates quickly. The view led to a sharp reversal in US Dollar, which eventually benefitted dollar-denominated assets – like gold.

With both the major event risks, FOMC and Bank of Japan meeting, out of the way, bullion traders now turn their attention to Friday’s release of quarterly US GDP print. Consensus estimates are expecting the US economy to post a solid growth of 2.6% annualized rate during the second quarter of 2016. A surprisingly stronger data would provide a much needed respite for the US Dollar and is likely to weigh on the precious metal. Conversely, a disappointing number would further diminish prospects of an eventual Fed rate-hike in 2016 and would eventually benefit gold prices.

Meanwhile, the ongoing sharp slide in crude oil, with spot prices now trading below $41.00/barrel mark at a fresh three-month low, also seems to act as a headwind for the yellow metal and seems to exert some bearish pressure on the yellow metal.

Nevertheless, spot gold might still be headed for a gain of around 1.0% for the month of July, second consecutive monthly gain.

 Technical update

From a technical perspective, inability to sustain its strength above 20-day SMA is pointing towards further near-term weakness, which is likely to be confirmed once the metal sustains its weakness below monthly lows support near $1310 level. On the downside, $1328 seems to provide immediate support. However, major support remains near $1310 area below which the commodity seems to resume and extend its near-term corrective move towards 50-day SMA support near $1290 region.

Meanwhile on the upside, the metal needs to sustain its strength above $1343 level, which if conquered should boost the metal immediately towards $1352-53 support turned resistance. A follow through buying interest above $1350 resistance zone set the stage for resumption of the prior bullish trend that seems to assist the yellow metal back towards post-Brexit swing highs resistance near $1370 region.