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Gold Is Up But Bears Still Have The Advantage

Gold

Gold prices have soared in early Monday trading, and are now poised for the biggest one-day pop in August.

December gold futures(GCZ8) were up $11.96, or 0.8 percent, at $1,196 an ounce in a sharp reversal after registering the steepest weekly drop since May 5.

Spot gold has also racked up some gains, moving up $2.47 to trade at $1,187.21. Futures price are usually higher than spot prices in normal markets, with the difference determined by prevailing interest rates and market demand.

(Click to enlarge)

Source: Investing.com

Market participants have attributed the bullion’s latest gains to investors betting that the metal has achieved a tentative bottom and also due to bargain-hunting by long term allocators. It appears as if the sharp price drop in recent weeks is beginning to trigger fresh demand especially in Asian nations. Last week, Comex December gold bottomed at $1,167.10 an ounce, its lowest level since early 2017.

 “Gold demand in Asia is picking up again thanks to the low prices,” Commerzbank has said. “This is reported for one thing by local traders, and for another is evident from the premiums. In India, the world’s second-largest gold consumer after China, higher premiums have to be paid on the world market price as bullion dealers replenish their stocks. They are taking advantage of the low prices – gold in Indian rupees dropped for a time to an eight-month low last week.” Related: Wall Street Confident In Trade War Breakthrough

Still, gold is yet to cross the psychologically significant level at $1,200 with a strong dollar mainly to blame for the weakness.

The ICE U.S. Dollar Index, a gauge that pits the greenback against half dozen major world currencies, has advanced 4.6 percent in the year-to-date and two percent in the month of August so far.

The index has lately been facing considerable resistance at the 96 level and has retreated 0.1 percent on Monday. A strong dollar can be a negative for dollar-denominated assets like gold and silver by making it more expensive for buyers using other currencies.

(Click to enlarge)

The yellow metal sold tanked badly during last week’s broad-based selloff in the commodities market, with high-grade copper slipping into bear-market territory. A spillover effect from emerging markets has been blamed for the headwinds, though those concerns have abated somewhat. The forex market has stabilized following recent turmoil following a severely depreciated Turkish lira.

Also helping has been signs of thawing trade tensions between China and the U.S., which has been contributing to dollar strength at the expense of the Chinese yuan. China is one of the world’s largest gold buyers and holds one of the world’s largest gold reserves. The Shanghai Composite Index has climbed more than one percent on Monday after reports that Washington and Beijing are laying the groundwork to solve the protracted dispute sometime in November.

Related: Emerging Market Woes Spark Surge In Bitcoin Trading Volume

Other commodities have been rallying, too—high-grade copper is 1.8 percent higher to $2.675 a pound after last week’s 4.1-percent decline. September silver futures (SIU8) have gained 0.6 percent to trade at  $14.730 an ounce while October platinum futures (PLV8) have advanced 2.1 percent to $793.70 an ounce. September palladium is up 2.1 percent to $896.20 an ounce after sliding 2.6 percent last week.

Gold Technicals

Technically, gold bears still have the near-term advantage amid a price downtrend on the daily charts.

Gold bulls will be looking for December futures to breach solid resistance at $1,226.00 while the bear’s breakout objective is to push them below last week’s low of $1,167.10.

First resistance is at the overnight high of $1,196.50 and another at $1,200.00. First support is at today’s low of $1,189.60 and another at $1,180.00.

By Alex Kimani for Safehaven.com

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