Will The Upcoming Indian Demand Season And A Stuttering US Dollar Push Gold Beyond $1355?

Gold proved to be resilient, extending its gains into the third day in a row after a couple of U.S data releases before the market open could not rescue the greenback from trouble that resulted from the minutes of the Federal Reserve’s July meeting, published yesterday. The minutes reported divided opinion among Fed officials over the timing of the next rate hike.

According to the Labor Department, US weekly unemployment claims for the week ending August 12 came in at 262,000. The number of individuals filing for initial jobless benefits fell by 4,000 last week compared to a week before, and has remained below the psychologically significant 300,000 level since November 2014.

In another report, the Philly Fed manufacturing index for August recovered to 2.0, beating expectations of 1.4. The index had reported an unexpected deterioration in the previous month with a reading of -2.9 for July.

Both economic releases published today topped analysts’ forecast but failed to dispel the sentiment that the next round of interest rate hikes is still far away. According to the CME Group’s Fed Watch Tool, chances of a September Fed rate hike have decreased to 9% today from 15% yesterday. The odds for a December rate hike dipped to 42.6% from 45.1% previously.

The US dollar slid to the lowest level in nearly eight weeks after the minutes of the latest meeting reported the split between some Fed officials who would like to start hiking rates soon and others that prefer to wait for more economic information to become available before embarking on the path to tightening. The U.S. dollar index, which tracks the greenback’s strength against a basket of six major currencies, fell to 94.31, the lowest since June 24.

Against the background of a softening dollar, gold’s appeal has caught on, as the precious metal becomes more affordable to buyers holding other currencies. Gold demand at the Multi Commodity Exchange (India) rose 0.4% for delivery in October and in far-month December contracts. This indicates a potential rise in demand in the country – one of the world’s largest importers of gold, in preparation for the upcoming wedding and festivals season.

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Fig: GOLD H4 Technical Chart

Gold failed around the $1355.00 zone yet again, and fell back to the $1345.90 support level. Bears that sold into the price rise and pushed prices back down also seem to be exhausted as they could not push the price below the key level $1345.90 as before. As can be seen from the RSI chart, the gold market has been maintaining its bullish overtone. After the current correction, bulls could be expected to gain enough momentum to break through the $1355 psychological resistance on future attempts.

Trade suggestion

Buy Stop at 1351.00, Take profit at 1355.00, Stop loss at 1345.90

 

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