Gold prices slumped last week to a four-year low, but do not expect a turnaround in fortunes any time soon with analysts now predicting that a level of $1,000 (£625) per ounce could present the next point of resistance for the precious metal.
On Friday, gold capped off a bad week of trading slumping 3pc to $1,163 per ounce on the day that Japan shocked financial markets by expanding its programme of quantitative easing (QE) in a bold move intended to revive Asia’s second-largest economy.
“More QE is supposed to be good for gold, apparently,” said Chris Beauchamp, Market Analyst, IG. “This thesis has broken down today as the precious metal, and silver too, takes one of its most horrendous dives in years. The game of ‘hunt the price range’ has started all over again, and while we may have some days of limited buying, the selling is likely to continue until at least $1,154. If gold can’t even rally when a central bank boosts its asset purchase, then the picture is bleak indeed, with a stronger dollar resulting in further losses towards $1,000 in time.
However, demand for physical gold in the world’s biggest markets for the metal appears to be holding up well despite the sudden falls in price, which has puzzled many bullion traders. The main triggers for demand at present seem to be private purchases of jewellery with buyers piling in, especially in emerging markets in Asia and India, to take advantage of lower prices.
China’s imports of gold in September were up significantly month-on-month, as were the country’s exports of gold jewellery valued at $10.7bn. Most of this gold went to Hong Kong.
Demand for the yellow metal in the US has also remained robust with 59,500 ounces of gold coins sold last month, up from 58,000 ounces in September.
“We’ve seen continued selling out of our western vaults, particularly the UK and Switzerland, and the biggest beneficiary has been the Malca-Amit vault in Singapore,” said Kelly-Ann Kearsey, dealing manager at the broker GoldMoney. “Overall our trade flows have been fairly steady and indeed the buyer/seller ratio is at 1 showing a perfect balance between buyers and sellers. However, there are some more big pointers out next week that are likely to give further direction to the market.”
Gold traders will be watching for market signals from figures including the US Institute of Supply Management (ISM) manufacturing data, US employment data, the Chinese Purchasing Managers Index (PMI) and the European Central Bank meeting, which could all give further indication of where the world’s economies are heading and provide further focus for the bullion markets, according to GoldMoney. Traders are also closely watching for the outcome this month of the Swiss gold referendum. The Swiss People’s Party has proposed a motion dubbed “Save our Swiss Gold” that will prevent the central bank from selling the precious metal, while forcing it to hold 20pc of its assets in gold.
The fall in gold prices comes as the US dollar continues to strengthen against a basket of major currencies in expectation of stronger growth in the world’s largest economy and that the Federal Reserve will soon end its asset-buying programme.
Gold prices like oil are closely linked to the strength, or weakness, of the greenback and the recent declines in the precious metal have also coincided with US crude falling below the critical $80 per barrel level last week. As the US dollar continues to strengthen this will dampen demand across commodities such as gold and oil, which are primarily traded in the currency.
The glum mood around gold prices has also filtered through to silver. The so called “devil’s metal” was down close to $15.90 per ounce at the end of last week and traders are forecasting further declines in line with gold and oil. The white metal has already dropped 20pc since July and is now also trading at its lowest level since the beginning of 2010.
Source :- http://www.telegraph.co.uk/finance/commodities/11204581/Gold-price-tumbling-to-1000-as-rising-dollar-crushes-confidence.html
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