Spot gold prices closed at $1,720.50 per ounce on Friday, October 19 – a decline of about $74 on $1,794 that the bullion made two weeks ago, on October 4, 2012.
After threatening – and giving up – to breach the $1,800-mark for a handful of sessions this month, the yellow metal is now in serious danger of plunging back into the $1,600s domain, the impending festive season (Eid, Dussehra and Diwali) notwithstanding.
Experts maintain that the recent decline in precious metal prices is a direct result of the dollar strengthening due to a mix of good news emanating from the US and continuing bad news from the Euro Zone.
In addition, experts maintain that short-term speculators have been taking profits at every little spike of the yellow metal, which is something that has kept the lid on prices moving onto the $1,800-territory and beyond.
“A lot of the speculators with weak longs have liquidated, which when combined with the sheer volume of commercial shorts on the market have helped this decline from the psychological $1,800 barrier,” Nayson Rohipour, Senior Bullion Broker, Gold.ae, a Dubai-based online trading platform of deliverable gold and silver, told Emirates 24/7 this morning.
“Physical demand is up both from India ahead of Diwali and here in Dubai with the current prices being an attractive point. Whilst an increase in physical demand won’t alone stop this downward trend, it may induce a reversal once the technical selling is exhausted,” he said.
Another Dubai-based expert Gerhard Schubert, Head of Precious Metals at Emirates NBD bank, agrees with Rouhipour’s analysis on the increased physical demand, and how such demand is not yet strong enough to reverse the trend in declining prices.
“Physical [gold] buying has been evident during the second half of last week, but physical buying can never stop a trend; it can slow it down and might force a turnaround situation once the technical selling is exhausted,” Schubert wrote in his latest weekly report on precious markets.
According to Schubert, the first level of defence at $1,740 was breached and the selling continued unabated last Friday. “A lot of the weak longs have been liquidating their positions and that is in itself a positive sign,” he says, but stops short of claiming that gold will see its fortunes turn around in the short term.
On the last trading day of the week, gold prices slumped to a mid-day low of $1,716 per ounce before recovering a tad and closing at $1,720 or thereabouts.
Schubert says that savvy investors – including those in Dubai and India – have started accumulating gold once again at these levels. “Purchases from India have been reportedly good, and we have also seen good buying, at these current levels in Dubai. The inability of gold to breach the $1,800 level has led to this $70 sell-off, but this has cleared the air from the heavily overbought positioning,” says Schubert.
But despite the increase in demand, current prices may not prove attractive enough to sustain short-term prices, and a continuing sell-off might just see prices roll back to the $1,600-levels.
“The performance has been disappointing and there is a danger that positive price drivers are pushed into the background and lose on relevance, at least in the short term,” says Schubert.
“The dollar also gained against most major currencies toward the end of the week, with the euro also finishing the week stronger due to an agreement being reached on an inter-state banking union. In my opinion we may well see weak performance this week but are near or at the bottom of this decline,” adds Rouhipour, suggesting that any short-term movement from here on will at best be temporary.
“We [might] soon see another surge, which may well break through the psychological barrier of $1,800,” reckons Rouhipour. “Still, we await the US elections, and this week will see a raft of country-specific data being released globally; so the beginning of the week may well show little movement with a surge toward the end,” he concludes.