Gold price rangebound, poised to rise on emerging dollar weakness

Otmane El Rhazi from The Bullion Desk.

The gold price traded sideways on Thursday morning after the release of further disappointing Chinese data that is likely to fuel debate over the pace of growth there.

Spot gold was last at $1,160.00/1,160.80 per ounce, up $1.70 on Wednesday’s close and down just $10 since the start of the week.

“The precious metals are consolidating,” FastMarkets analyst William Adams said. “There is underlying buying around but a lack of follow-through buying interest means the shorts seem prepared to wait for lower prices so although there is potential for short-covering it is not being seen yet. The markets remain vulnerable.”

In data released earlier today, Chinese industrial production at 7.7 percent undershot the forecast 8.0 percent, while fixed asset investment and retail sales were also slightly worse than expected and their restive previous readings.

This suggests the liquidity injections into the banking system in September and October totalling around $125 billion have yet to reach the grass roots of the economy. The PBoC’s stimulus aimed to reinvigorate an economy that looks increasingly in danger of missing the government’s GDP growth target of 7.5 percent for the year.

The dollar, which was last at 1.2464 against the euro, is strong while there is growing speculation that the ECB, the only major central bank not to have gone down the route of quantitative easing, may introduce fresh easing measures to kick-start the bloc’s stumbling economy.

Frontline EU numbers expected on Friday will be closely watched for how they may sway ECB president Marion Draghi’s thinking before next month’s meeting.

Still, technical weakness is starting to build up in the greenback, which could provide a boost for gold in its attempts to tackle resistance at $1,180, FastMarkets analyst Tom Moore believes.

“Gold’s upside potential is on two fronts. The GOFO has fallen into backwardation, tightening up physical supply, and the dollar continues to look overbought, with a potential head-and-shoulders reversal pattern making a pullback in the dollar index to around 86 highly probable,” he said.

“Both of these factors highlight the potential for gold to break back higher and challenge resistance from its previous double bottom at $1,180,” he added.

In other data today, Japanese revised industrial production improved at 2.9 percent, while in the eurozone the German final CPI was flat at -0.3 percent and the French number improved to 0.0 percent.

The ECB monthly bulletin, US unemployment claims, Jolts job openings, crude oil inventories and the Federal budget balance are due, as is a speech from Federal Reserve chair Janet Yellen.

In the other metals, silver was last 11 cents higher at $15.70/15.76 per ounce, while platinum at $1,202/1,207 was up $7 and palladium edged $2 higher to $773/779.

(Editing by Mark Shaw)

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