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Gold fluctuated in a thin range in European afternoon trading hours on Wednesday. The metal was held around one-week lows as the dollar firmed up and stocks jumped in the wake of a pickup in shares of Germany’s largest lender Deutsche Bank AG and rising crude prices.
Gold lost some of its safe-haven appeal as European equities advanced for the first time in four days, after Deutsche Bank agreed to sell its Abbey Life insurance business to Phoenix Group for €1.09bn. The deal may give a small boost to the bank’s fortunes, coming at a time when the U.S Department of Justice has demanded $14 billion from Deutsche to settle an investigation into its selling of mortgage-backed securities prior to the sub-prime crisis, and the suspected role of these dealings in triggering the financial crisis in 2008.
The German bank’s shares were further supported by statements from its Chief Executive Officer John Cryan who had ruled out a capital increase on Tuesday amidst concerns that the bank may be forced to raise capital to meet mounting legal costs. Raising more capital would dilute the holdings of existing shareholders and drive down prices.
Crude oil prices also ascended in the European session despite an assumption that no deal or agreement on capping output can be reached in the informal meeting between OPEC and non-OPEC producers which is scheduled to begin at 14:00 GMT today. Hopes have shifted to the official OPEC meeting in November, given Iran’s refusal of Saudi Arabia’s offer and the desire of Libya and Nigeria to ramp up their output after political turmoil.
Gold is often seen as a hedge against inflation which can be ignited by rising energy prices that can have a spillover effect within the overall economic system. To assess the crude supply situation further, traders are awaiting the official weekly U.S. inventory data due to be released later on Wednesday by the Energy Information Administration. Analysts expect the report to show a rise in domestic crude stockpiles last week, while the API reported a 752,000-barrel drop in crude supplies for the week ended Sept. 23.
The U.S dollar index was up nearly 0.1 percent against a basket of six major currencies, making gold more expensive for buyers holding other currencies. Fed Chair Janet Yellen will give her semi-annual testimony before a Congressional committee at 15:00 GMT today. Other Fed officials such as Cleveland Fed President Mester and Kansas City Fed President George will be speaking on the economy and monetary policy at separate events later in the day today.
Holdings of the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, dropped by 0.22 percent to 949.14 tons on Tuesday.
Fig: GOLD H4 Technical Chart
Gold is swinging around the support at 1325.00 after breaking through the trading range from 1333.60 to 1342.00. The precious metal is up against a strong zone of support, which is the long-term MA50 following a breakout below the short-term MA20 yesterday. The downside is getting stronger with a wide gap between the –DI and +DI lines, which has spurred a rise in the ADX index. Gold may decline further to test the 23.6% retracement level at 1319.36.
Buy Digital Put Option from 1325.00 to 1320.00 valid until 20:00 GMT September 28, 2016