Gold prices fell to one-week low with bears challenge 1,390 USD support area | Finance and Markets

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Gold prices inched lower on Tuesday, as the US dollar is trading close to its three-week high amid the reducing expectations of interest rates cut by the US Federal Reserve.

The spot gold was down by 0.5% to 1,387.80 USD per ounce as of 06:30 a.m. ET, having earlier touched 1,386.11 USD, which was its lowest since July 2. Meanwhile, the US gold futures fell by 0.7% to 1,389.50 USD per ounce.

The weakness in gold prices is largely due to the easing of interest rate cut expectations, as well as the recovering of the bond yields. Markets continue to bet on 25 basis point cut in interest rates at July’s FOMC meeting, but it looks like sentiment is easing and the dollar has rebounded.

Another serious obstacle for the gold price is the imposition of higher import duties by India, the world’s number two buyer. The increase in the duty to 12.5% from 10% on July 5 caught gold traders and jewelry manufacturers off guard as some had been expecting the government to lower the tax instead. The Indian government wants to reduce its fiscal deficit as well as the trade deficit, and since gold is the second biggest import by value behind crude oil and fuels, it is an obvious target for increased taxation. The imposition of such duties will possibly hit the demand in the country. The last time an Indian government raised import taxes, in August 2013, demand for gold jewelry fell sharply and took about a year to recover to previous levels.

However, the decline in gold prices was limited by weaker financial markets, with global stocks falling sharply on Tuesday after stinging warning came from German chemicals giant BASF about the effects of the global trade war.

On the technical side, spot gold may end its correction around support at 1,387 USD and then retest a resistance at 1,421 USD per ounce.

Meanwhile, holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.15% to 795.80 tonnes on Monday from 796.97 tonnes on Friday.

Hedge funds and money managers raised their bullish stance in COMEX gold in the week to July 2, says the data of the US Commodity Futures Trading Commission (CFTC) in a report delayed because of the US Independence Day.

Among other precious metals, silver gained 0.1% to 15.04 USD per ounce. Palladium slipped 0.4% to 1,555.32 USD, while platinum fell by 0.2% to 812.23 USD.

Gold trading and demand

Members of the London Bullion Market Association (LBMA) traded 227.6 million ounces of gold worth around 300 billion USD during the week to June 23, the biggest weekly total since data began in November, the LBMA said on Tuesday.

The rise in activity came as gold prices rocketed, hitting a six-year peak of 1,438.63 USD on June 25 after four weeks of rapid gains.

Volumes dipped slightly in the week ending June 30 to 225.7 million ounces, but remained far above the average since November of 151 million ounces a week, the LBMA said.

London is a global gold trading hub where most transactions are made in over-the-counter trades between banks, brokers, and dealers.

Meanwhile, the gold rush of central banks around the world this year continues to show no signs of weakening amid a slowdown in economic growth, trade, and geopolitical tensions, and some governments are increasingly trying to break with their dependence on the US dollar.

On Monday, the People’s Bank of China announced it has increased its precious metal reserves for the seventh consecutive month, adding 10.3 tons of gold in June after gaining 74 tons in the six months to May.

At the same time, Polish authorities said last week that they had increased more than twice their gold assets this year, making the country the largest owner of the precious metal in Central Europe.

In 2019, the price of gold rose to a six-year high amid investor bets to lower Fed interest rates, although stable US employment data on Friday may have slightly diminished these projections.

In the past year, central banks around the world purchased 651.5 tonnes of gold – a 74% increase over the previous year. This year, purchases can reach 700 tons if China maintains its trend and Russia at least buys the same volumes of the precious metal as in 2018 – approximately 275 tons.

Gold price analysis

Gold traded with a mild negative bias for the fourth consecutive session on Tuesday and remained well within the striking distance of Friday’s post-NFP swing low. The precious metal now seems to have found acceptance below 100-period SMA on the 4-hourly chart and is currently flirting with one-week-old trend-line support.

gold futures

The oscillators on the daily chart, though have been losing positive momentum, maintained their bullish bias and thus, warrant come caution before placing any aggressive bets ahead of the Fed Chair Jerome Powell’s scheduled speech.

Hence, it would be prudent to wait for a sustained break below the said support, currently near the 1,390 USD region, before positioning for any further depreciating move back towards the last week’s swing low, around the 1,382-1,381 USD area.

On the flip side, immediate resistance is now pegged near the 1,405 USD region (50-period SMA on the 4-hourly chart), above which the commodity is likely to extend the positive momentum back towards multi-year tops – around the 1,440 USD region, with some intermediate resistance near the 1,423-1,427 USD zone.