Gold trading outlook: futures drop on Yellen comments

Gold dropped for a second session on Monday after Federal Reserve Chair Janet Yellen signalled that the U.S. central bank is likely to lift interest rates later this year.

Comex gold for delivery in April was down 0.59% at $1 192.7 per troy ounce at 6:51 GMT, shifting in a daily range of $1 198.5 and $1 191.3. The precious metal lost 0.42% on Friday to $1 199.8. Gold is headed for a second monthly decrease following a nearly 8% jump in January.

Policy makers may initiate their first rate hike since 2006 later this year even if the move slows down the recovery of the worlds largest economy, Ms. Yellen said on Friday. During her speech in San Francisco, the official said that the Fed would take a “gradualist approach” when lifting borrowing costs, outlining that the economy might not be strong enough to handle higher rates.

“With continued improvement in economic conditions, an increase in the target range for that rate may well be warranted later this year,” Yellen said. A modest increase in the federal funds rate is highly unlikely to stop the recovery of the U.S. economy, she added.

Gold has been on the rise since policy makers slashed their expectation of the federal funds rate on March 18 and said that the metric is expected to end the year at 0.625% compared to their previous estimate of 1.125%. During their two-day meeting earlier this month, Fed officials also expressed concerns about the robust dollar, which received some support after Ms. Yellens speech.

The U.S. dollar index for settlement in June was up 0.32% at 6:51 GMT to trade at 97.830, shifting in a daily range of 97.875 and 97.575. The U.S. currency gauge dropped 0.17% on Friday to 97.520, having earlier risen to 98.210, its highest since March 23.

Yellens latest comments might just change the course of gold and cause a downward movement in the price from hereon,” said Howie Lee, analyst at Phillip Futures, cited by Reuters. He also projected that prices may reach $1 180.

Last weeks rally was also fueled by geopolitical tension in the Middle East as investors sought financial safety in the precious metal. Saudi Arabia and allies launched a second wave of air strikes against Shiite rebels in Yemen on Thursday. Additionally, the armed conflict continued on Sunday as the rebels recaptured the airport of Aden.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, dropped 5.97 tons on Thursday to 737.24 tons, their lowest since late January, and remained the same on Friday.

Pivot Points

According to Binary Tribune’s daily analysis, April gold’s central pivot point on the Comex stands at $1 199.0. If the contract breaks its first resistance level at $1 206.4, next barrier will be at $1 212.9. In case the second key resistance is broken, the precious metal may attempt to advance to $1 220.3.

If the contract manages to breach the S1 level at $1 192.5, it will next see support at $1 185.1. With this second key support broken, movement to the downside may extend to $1 178.6.