Gold drops below $1,700/oz; may fall further on profit-booking

Spot gold prices fell below $1,700 per troy ounce for the first time in about a month as low volumes and profit-booking softened the prices of the yellow metal.

Gold traded at $1,699.70 per ounce in early trade this morning, with a Dubai expert predicting further downside in the precious metal’s prices going forward.

“There seems to be a real danger that gold could see some more long liquidation before the end of the year, as liquidity and adding risks make way towards booking profits and closing the books for the year,” said Gerhard Schubert, Head of Precious Metals, Emirates NBD.

“The immediate drivers for the gold price appear to be the [lack of] progress of the talks in the US about the ‘Fiscal Cliff’ and the developments in the European sovereign debt crisis. It appears now that the markets have the certainty that the uncertainties will continue, until at least September 2013, the time of the German general election,” said Schubert in his weekly precious metals report.

“Greece will most likely receive the required payments as a sort of drip-feed patient, unless real implementations of the Greek government’s decisions take place and effect,” he added in his report.

Gold ended last week at $1,715 per ounce, down $36 from the previous week. “Gold gave up all the gains from last week and fell back into the range of $1,700 to $1,738 [per ounce],” wrote Schubert.

“There have been various attempts to explain what happened last Wednesday, the moment Comex opened, and I do want to give you my take on that event. I think this was an extremely well executed ploy in a market what looked already heavy for two days.

"The key was to sell the December contracts quickly and in an absolutely non-price sensitive fashion. The drop that followed might have even been bigger than anticipated, but it gave the seller all the time in the world to buy the February contracts at extremely attractive prices, compared with the switch rate. References to large put-option buying during the previous days have also been referred to and we might not find out what really happened, but it appears that this has been considered a buying opportunity,” he said.

“Gold prices recovered nicely after this event and prices reached $1,730 before being sold off again on last Friday afternoon. One of the reasons given was the slow progress in the talks about the ‘Fiscal Cliff’, but that appears to be more of an excuse than an explanation. There seems to be a real danger that gold could see some more long liquidation before the end of the year, as liquidity and adding risks make way towards booking profits and closing the books for the year.”

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