Gold prices ease ahead of ECB rate decision
Gold Bar Reuters

Gold extended the previous days' gains on 1 July and touched a new three-month high as uncertain growth outlook for the US weakened the dollar, increasing the investment appeal for the assets denominated in the greenback.

The yellow metal rallied 1% from the previous close to $1329.50 on Monday as various economic indicators from the US underpinned the view that the world's largest economy will take longer to start raising interest rates. The metal rose to as high as $1333.22 early Tuesday in Asia, its highest since 24 March.

The Dollar Factor

The June Chicago purchasing managers' index (PMI) fell to 62.6 from 65.5 in May, data showed on Monday. Analysts were expecting a moderate fall to 63.0.

Dovish comments by a Fed official late on Monday aided the dollar selloff.

San Francisco Fed President John Williams in a speech to the members of the Utah and Montana Bankers Association predicted full employment and normal inflation to reach by the "early part" of 2016, according to a Reuters report.

As for rate rises, he told reporters, "I still see that as some time off in the future," suggesting that he still believes a rate rise will not be appropriate until the second half of 2015.

The US dollar index, the gauge that measures the strength of the greenback against the currencies of the six largest trading partners of the US, dropped below the 80 mark and touched a 1-1/2-month low of 79.76.

Safety-Seeking Flows

The safe-haven demand induced by geo-political issues has been another factor helping the yellow metal.

Iraqi troops battled to dislodge an al-Qaeda splinter group from the city of Tikrit on Monday after its leader was declared caliph of a new Islamic state in lands seized this month across a swath of Iraq and Syria, according to a Reuters report.

Ukrainian President Petro Poroshenko said on Tuesday that government forces would renew offensive operations against pro-Russian rebels and "free our lands", hours after a ceasefire to make way for peace talks with the rebels had expired.

The Price Trend and Technicals

Ever since gaining ground from a four-month low of $1240 in early June, gold has rallied more than 7.5% to the three-month high on 1 July.

The metal had rallied nearly 15.5% to the March peak of $1392, a six-month high, before declining nearly 11% to the June low. And year-to-date, gold is still 10.6% higher.

The fall in dollar on 19 June following Fed Chair Yellen's dovish comments had pushed XAU/USD through the upside barrier of a downward channel and led to a close above the 61.8% Fibonacci retracement of the March-June downtrend.

The gain on Monday strengthened the case for a reversal of the downtrend, exposing topside levels like $1342 and $1354.69 ahead of the March peak of $1392. Then comes the August 2013 peak of $1433.

On the downside, the metal will have a stop at $1300, the 38.2% mark, which is however, a weak support compared to the 23.6% level of $1276.40.

Next downside levels are $1240 and $1214 ahead of the December 2013 low of $1182.14.

Gold daily
Gold Daily IB Times UK/FXStreet

Broader Picture

The bounce off the June 2013 low of $1179, a near three-year low, ended at $1433 in August. Then the yellow metal made a retest of the July low only to bounce back again near the $1400 mark, making $1180 a strong support.

If the recent move is confirmed as a reversal of the March-June downtrend, then the downside barrier of the range has been lifted to $1240.

In case of a break on the higher side, that is, a break of the $1392-$1433 region, then gold will target $1480 ahead of $1525.

On the downside, a move beyond the $1180 mark will open doors to $1165, and then $1073, a stronger support.

Gold weekly
Gold Weekly IB Times UK/FXStreet

Others in the Group

The dollar downside aided the entire precious metals group. Silver strengthened to $21.12 from Friday's close of $20.95. It is only a tad below the three-month high of $21.19 touched on 27 June.

Platinum rose to $1487 from $1479 and palladium to $845.70 from $841.50 helped by the dollar slide since late Monday.