Gold Prices Down Over 1 Percent to 4-1/2 Week Low Posted by Adam King on October 15, 2012
Certified gold prices fell over 1% in early trading Monday to $1,734.29 per ounce, the lowest level since September 13, after better than expected U.S. retail sales data that brought forward questions over the depth of the Federal Reserve’s plans for monetary stimulus.
Profit-taking in the gold market accelerated as prices dropped through a key support level near the late September low at $1,737.50 per ounce.
Slobodan Drvenica, an analyst at Windsor Brokers, Ltd., said gold’s near term negative sentiment has been established on repeated failures under the psychological $1,800 barrier, which has gained momentum to break below the initial $1,770/63 support level.
According to Drvenica’s analysis, as losses reached $1,741, the immediate downside target is $1,736, the low established on September 26, and the more significant $1,717 level, last touched on September 13. A break of that level is necessary to confirm the top at $1,795 and open the way for further correction.
Prices in the gold market had largely been waiting for more decisive direction from Spain as to when the country will formally request a much-needed bailout from the European Union, which would jumpstart the European Central Bank’s proposed bond-buying program. In addition to concerns over inflation instigated by monetary stimulus, which has traditionally been very good for precious metals, the immediate weakness in the euro could benefit the price of gold by strengthening the dollar in the currency pair.
Recent economic reports out of the U.S., including a better-than-anticipated jobs report and CPI numbers, have indicated an economy strengthening in some aspects, which has cast doubt on how long the current incarnation of Quantitative Easing will last.
The cumulative effect has been a serious lag and drain on the gold market that has broken the rally brought about by the third round of Quantitative Easing. Amidst the drivers forcing gold prices lower, short-term investors speculating on the third QE are selling off positions that are not performing as well. The difference between the extended QE and the previous versions is partially taken as a reason for the precious metals’ latest performance.