Gold trading outlook: futures hit fresh three-month low on U.S. rate hike prospects

Gold swung back to losses on Tuesday as a string of robust U.S. economic data bolstered speculations that the Federal Reserve would initiate its planned interest rate hike sooner rather than later.

Comex gold for delivery in April was down 0.80% at $1 157.2 per troy ounce at 8:14 GMT, shifting in a daily range of $1 168.3 and $1 156.1, its lowest since December 1st. The precious metal gained 0.19% on Monday to $1 166.5

The yellow metal took its largest daily hit since December 2013 on Friday after the U.S. Labor Department showed that non-farm payrolls increased by 295 000 in February, higher than projections of 240 000 new employees and also better than the January gain. The unemployment rate slid to almost a seven-year low of 5.5%.

The strong economic data boosted the dollar to new highs while hurting demand for the yellow metal as more investors believed that a sooner increase in interest rate could be undertaken ever after Fed Chair Yellen suggested that such move is unlikely during the next couple of policy meetings.

Previously Fed officials were worried about the lower-than-targeted inflation level and the impact a rate hike would have on the U.S. recovery. However, several policy makers have already expressed their opposition against waiting longer before initiating the first interest rate hike since 2006.

On Monday, Dallas Fed President Richard Fisher joined the group by asking for a faster increase in borrowing rates and even warned that a further delay could expose the U.S. economy to a risk of recession. An eventual increase would curb demand for all non-interest-bearing assets, including gold.

“Weighing on the gold price is optimism about the U.S. economy,” Kotak Commodity Services Ltd. wrote in a note, cited by Bloomberg. “Upbeat U.S. labor data released last week has increased expectations of an early interest rate hike.”

The U.S. dollar index for settlement in March traded 0.54% higher at 98.110 at 8:18 GMT, shifting in a daily range of 97.765 and 98.185, its highest in more than 11-1/2 years. The U.S. currency gauge slipped 0.02% on Monday to 97.580.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, dropped 4.48 tons on Friday and an additional 3.28 tons on Monday to 753.04 tons, their lowest in more than a month.

Meanwhile, gold traders are waiting for the outcome of the Greek debt crisis, which may cause additional uncertainty over the region and boost gold prices, in line with the metals tendency to benefit from economical and geopolitical instability.

Greek officials are set on Wednesday to begin discussions with creditors over Greeces economic reforms, after Eurogroup President Jeroen Dijsselbloem lost patience and said that “there is no further time to lose”.

Pivot Points

According to Binary Tribune’s daily analysis, April gold’s central pivot point on the Comex stands at $1 168.6. If the contract breaks its first resistance level at $1 172.3, next barrier will be at $1 178.2. In case the second key resistance is broken, the precious metal may attempt to advance to $1 181.9.

If the contract manages to breach the S1 level at $1 162.7, it will next see support at $1 159.0. With this second key support broken, movement to the downside may extend to $1 153.1.