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Gold Plunges Weighed by Stronger Dollar and Greek Political Stalemate

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Gold prices slid 2% on Tuesday amid heavy trading as political crisis in Greece heightened concerns that euro-zone might be heading for another tumultuous phase.

Gold which has been hovering in a tight range of $1,620 and $1,680 touched almost $1,600 an ounce level on Tuesday, as fear over worsening of debt crisis triggered a technical sell-off.


Despite gold, other commodities and equities recovered some lost ground on Tuesday; the plunge was deep enough, cutting the gold’s gains to 3% so far this year.

Meanwhile, option volatility also rose as investors bought put options to guard against further downside risk in bullion prices. The yellow metal breached a series of technical support levels, heralding more weakness to come.

According to Reuters, the trading volume was on the course for its strongest showing in more than a month and about 40 percent above its 30-day average.

Spot gold slid 1.9 percent on the day to $1,607.70 an ounce, its largest one-day decline in a month. Earlier, the metal has hit a session low of $1,594.94 an ounce, its lowest price since Jan. 4.

U.S. gold futures lost $34.60 at $1,604.50 an ounce.

Even though gold is considered as safe haven asset, rallying at a time of economic certainty, it has tracked riskier assets like oil and stocks this year.

Commenting over gold’s plunge, Jeffrey Sherman, commodities portfolio manager of the $33 billion asset manager DoubleLine Capital, said to Reuters, “Absent new monetary stimulus, gold doesn’t make sense. When people are fearful of the fiat currencies eroding their wealth, that’s when gold catches its bid.”

Since last February, gold lost almost $180 an ounce as series of strong economic indicators and lack of any hint from fed about quantitative easing or bond purchase program, weighed on the metal.

Mounting pressure on euro pushed up the dollar and U.S. treasuries on Tuesday, putting pressure on other commodities and oil prices. Weakness in the Wall Street also increased the pressure on precious metals.

In a note, Andrew Wilkinson, chief economic strategist at Miller Tabak & Co, wrote, “With stocks slumping and with treasuries rallying and risks generally rising … investors are withdrawing from the gold market, perhaps as margin calls are made, forcing investors to liquidate precisely when they don’t want to.”

Gold’s technical outlook gloomy

According to analysts polled by Reuters, gold could fall further if it fails to hold above a $1,600 an ounce level as there is little underpinning from technical charts under that level.

“The fact that support has been broken on a daily, weekly and monthly time frame suggests that this selloff could get worse,” said Adam Sarhan, CEO of investment research and consultant Sarhan Capital to Reuters-CNBC.

Sarhan also believes that gold is already testing its lows of 2012 as heavy selling pressure on Tuesday sent the metal below its daily and weekly support between $1,620 and $1,630 an ounce as well as its 18-month upward trend -line on monthly charts.

Will Asia Boost the Demand for Gold?

A data showed that monthly imports of gold from Hong Kong to mainland China soared in April, even as Indian government decided to scrap the excise duty on jewelry it imposed in March.

Jeff Wright, managing director, Global Hunters Securities said to Marketwatch that he was optimistic that gold will regain ground via physical demand from China and India in the coming weeks.

The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 1.94% lower at $156.

In some other precious metal markets, Silver edged down 1.8 percent on the day at $29.47 an ounce. Platinum lost 1.1 percent on the day to $1,505.74 an ounce and palladium plunged 3.1 percent to $621.97 an ounce.

 

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edliston
Post Written By: Ed Liston

Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.


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Ed Liston

Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing.

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