Gold prices at the bottom of their range, down but not out - Analysts
December gold futures have been under significant technical selling pressure most of Tuesday, with most of the pressure coming after better-than-expected U.S. service-sector data. December gold futures last traded at $1,485.60 an ounce, down 1.69% on the day. Although the yellow metal is down on the day, it is still well within its months-long trading range.
Tuesday morning, the Institute of Supply Management (ISM) said that its Non-Manufacturing Purchasing Managers Index rose to a reading of 54.7% in October, up from September’s 52.6%. The data beat economist forecasts as the consensus called for the index to come in at 53.5%.
“As soon as you saw those ISM numbers you had to get out of gold,” said Phillip Streible, senior market analyst at RJO Futures. “The better than expected data has created some upbeat sentiment among investors and that is hurting gold.”
Although gold is testing the bottom end of its range, Streible said that the fight is still not over.
He explained that last week’s Federal Reserve monetary policy meeting continues to provide a floor in the marketplace.
“The Fed has told us that they are not going to raise interest rates until there is a material change in inflation and we don’t see that scenario happen for at least the next couple of years and that is good for gold,” he said.
Bart Melek, head of commodity strategy at TD Securities, said that they are expecting to see lower prices in the near-term as sentiment traders got caught on the long-side of the market.
With the current selling pressure, Melek said that his team is watching initial support at $1,474 an ounce, which represents gold’s 100-day moving average. However, he added that the selling pressure could end up pushing prices as low as $1,425 an ounce.
“You have to recognize the potential for lower prices as good economic news picks up,” he said.
TD Securities still sees any correction as short-lived with the U.S. monetary policy and market uncertainty continuing to support prices through to year-end.
“Markets aren’t pricing in any new rate cut anytime soon but we think the Fed will be forced to cut again sooner rather than later,” he said. “We also expect equity market volatility to pick up and that will be good.”
Along with better than expected economic data, positive trade news data was also impacting trader sentiment Tuesday. There was growing optimism that the U.S. government could roll back some tariffs on Chinese imports as the two nations moved closer to resolving their ongoing trade war.
The news has boosted the U.S. dollar and pushed bond yields modestly higher, both are negative factors for the gold market. The U.S. dollar indexx was up 0.4% on the day, last trading at 97.94 points. Meanwhile, the yield on U.S. 10-year notes rose to 1.85%, up nearly 4% on the day.