Spot gold price fell about $13 an ounce to a low of around $1,647/oz as lean markets saw the precious metal fall below $1,650 once again on Tuesday.
The Dubai gold rate has mirrored the international decline, and a gram of 18ct gold can be had for Dh152 in the Dubai Gold Souq retail market, near its four-month low.
Gold has come under increasing pressure in the past few weeks, and the yellow metal is now down 5.7 per cent, or $100 an ounce, in a month. The yellow metal traded at $1,750 on November 25, 2012.
“Gold experienced a sort of déjà vu. The liquidation seen over the course of last week [down $38, or 2.3 per cent], reminded me strongly about the way how gold price came under pressure in December 2011,” Gerhard Schubert, Dubai-based Emirates NBD bank’s head of precious metals, wrote in his latest weekly update on precious metals.
“The selling pressure was evident at all times during last week’s proceedings. There has been speculation about the reason behind this relentless pressure. Some market participants believe that selling originated from a major hedge fund, who was selling gold, in order to be able to fund redemption requests. Other views are that some major put option positions are to blame,” Schubert wrote in his report.
Whatever the case may be, the ‘mystery seller’ theory continues to plague markets and take its toll on the gold price, with the markets steadily adapting to a falling gold-price pattern.
“The damage is done, and this will be mostly felt in a potential change of sentiment towards gold,” believes Schubert. The change in sentiment towards gold investment is obvious as the recent decline comes at a time when many central banks across the world are busy lapping up gold to boost their portfolios.
“IMF statistics reveal that Brazil, Russia, Belarus and South Korea have increased their gold holdings during the month of November,” said Schubert. “Central Banks are clearly sticking to their plans and diversifying a small amount of their currency reserves into gold,” he added.
Indeed, gold prices sank to below $1,635 an ounce last week before recovering to end the week at $1,657 an ounce last Friday. This week, due to the Christmas holidays, the mystery seller may once again leverage the lean trade as an opportunity to push prices further down.
“Gold price tanked down to the $1,635 level before closing for the week in the high $1,650s,” Schubert wrote. “The support levels at $1,675, $1,661 and $1,650 were demolished quite quickly and these breaches invited further stop loss selling and aided also fresh technical short sales,” he added.
“Friday’s price recovery was important, but it remains to be seen how the market holds out over the next few ‘holiday’ sessions, with even more subdued liquidity on show. This can, of course also be the chance for significant price rises, as most of the technical selling is already done,” the Dubai-based expert reckons.