Stock Market Watch

Gold Prices Fall Below Psychological $1,600 Level Amid Heavy Trading

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Gold Prices fell further on Wednesday amid high trading volume, hitting a four month low as investors rushed to buy safer assets like dollars, U.S. treasuries and German Bunds, fearing the political gridlock in Greece and structural weakness in Spanish banking system might pave the way for another bout of euro-zone debt crisis.

The dramatic fall in gold prices has almost wiped out all gains year-to date. Gold has now lost $210 an ounce since late February-when metal touched the highest for the year at $1,790.


This week’s tumultuous events in euro-zone have prompted investors to cut short their long positions in gold built on optimism that followed a 130-billion euro bailout deal between the EU, the IMF and Greece.

Speaking to Reuters, Edward Meir, metals analyst at INTL FCStone, said “With the fate of the euro once again hanging in the balance, investors may have also soured on gold, perhaps questioning whether they are now going to be seeing sufficient amounts of ‘bail-out euros’ that could potentially help the precious metal find a bid.”

Spot gold recovered a bit from session’s lows; however, it still ended 1% lower for the day. Bullion touched four-month low of $1,579.30, its lowest level since Jan. 3.

U.S. gold futures ended lower $10.30 at $1,594.20 an ounce. According to Reuters, trading volume was sharply above average for a second straight day, about 40 percent over its 30-day norm.

Meanwhile a data provided by CME showed that open interest- a gauge on the total number of open futures contracts, rose 1 percent despite Tuesday’s sell-off. The move underpins that some U.S. investors might have initiated short positions as others opted to close out their bullish bets.

Gold’s fall for third straight day hit hard the metal’s relative strength index, falling to 33 on Wednesday. A reading below 30 indicates an oversell.

Gold prices soared 14% in February 2012 but since then it has wiped out almost all gains with year-to-date gain standing just over 2%.

Technical charts analysis shows that gold is on verge for further downslide after metal fell through heavy daily and weekly support between $1,620 and $1,630 an ounce and its 18-month upward trend-line on monthly charts.

“Gold seems to be pegged to the euro and this is not going to rally in a hurry either. So all in all, I expect the market to trend lower and would look for a trading range for the next month of $1,525-$1,650,” said David Govett, head of precious metals at Marex Spectron, to Reuters.

The bullion has been on losing streak since last two months, as series of strong U.S economic indicators and absence of any hint from the Federal Reserve regarding quantitative easing or bond buying program, put the pressure on the metal.

According to  Narayana Kocherlakota, president of the Minneapolis Fed, no further monetary easing seems to be on cards. “Recent improvements in the U.S. economy should mean the Federal Reserve’s next policy move will be to hike interest rates, possibly in just six to nine months, said Kocherlakota to Reuters.

The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 0.98% lower at $154.47.

In some other precious metal markets, most metals ended lower but recovered from session’s low on Wednesday. Silver edged lower 0.8 percent to $29.18 an ounce.

Palladium also continued losing, even though the release of Chinese data showed strong year-on-year growth in car sales in the world’s largest auto market. Palladium is a key raw material used in the manufacturing of automobiles.

Palladium ended lower 1 percent on the day at $609.03 an ounce, while platinum slid 0.5 percent at $1,496.99 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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