Gold Traders Accumulating Call Options To Celebrate Upcoming Demand Season
Gold was almost flat in the European session on Wednesday after surging nearly 1.8% on Tuesday and 3.6% month-to-date, largely due to a softening U.S dollar. In addition to a string of disappointing U.S data that diminished the likelihood of a U.S. interest-rate hike this month, rising demand for physical gold for the upcoming festival and wedding season in Asian countries, especially India and China, is another factor that pushed prices of the yellow metal higher.
Coming on the heels of last week’s anemic ISM Manufacturing PMI that fell into contraction for the first time since February 2016 and a weaker than expected non-farm payrolls, yesterday’s ISM Non-Manufacturing PMI, despite remaining above 50 which indicates an expansion, posted the lowest PMI reading since February 2010 at 51.4.
The speculation over a rate hike as soon as September has been fueled recently by Fed officials who stated that any move towards higher rates would be based on economic data. That is the reason why each data release draws so much attention from the markets currently. According to CME Group data, the likelihood of the Fed raising rates this month were priced in at only 15%, after yesterday’s data releases. The probability for a December rate hike also dipped to around 47%.
In the first half of this year, gold demand has been shifting from jewelry demand to investment demand, due to aggressive monetary policy being deployed in most parts of the world that have reinforced the attractiveness of a no-yield asset like gold. Private investors of BullionVault, the largest gold and silver market online, increased their net gold purchases to almost half-a-ton of bullion last month, the heaviest net addition in nearly four years.
However, the booming demand scenario could change in the last four months of 2016 as Eastern festivals and a busy wedding season is around the corner. Sales in India – the world’s second-biggest gold consumer – began picking up in early September for the Ganesh Chaturthi festival, which fell on September 5th this year. Discounts in India have narrowed to the smallest in three months at around $16 an ounce over official domestic prices, down from $25 last week and $52 in the week before.
Demand for gold jewelry is expected to strengthen further in the final quarter as India gears up for festivals such as Dussehra (starting on October 11) and Diwali (starting on October 30) as well as for the winter wedding season, when people celebrate with gifts of gold.
In China and some other Asean countries such as Singapore and Vietnam, consumers are making purchases ahead of the mid-Autumn festival. Premiums in top consumer China were almost unchanged at $3 and $4 an ounce versus $3 last week, while premiums in Singapore also remained flat from last week at about 60-70 cents an ounce to the spot benchmark.
Fig: GOLD D1 Technical Chart
Gold has been paring almost of its losses from the last two weeks of August and is moving upwards towards a possible test of the resistance at 1355.00. The metal has crossed over both the 20-day and 50-day moving averages, signaling a reversal into an uptrend. However, the pace of gains is expected to slow down today after gaining in price and bullish momentum for 4 days in a row. The level at 1355.00 is forecast to be a solid handle in the near term for gold before it is able to attempt any higher targets.
Buy Digital Call Option from 1350.00 to 1355.00 valid until 20:00 GMT September 07, 2016