Gold Drops 1% on Technical Selling

December 4, 2012 at 08:37


Gold fell about 1% to its lowest in nearly a month on Tuesday, on technical selling after prices broke below key support levels, but the dip may lure bargain hunters who expect the gloomy global economy to keep gold buoyant.

Gold broke below $1,710 an ounce and subsequently $1,705, key technical levels it had held since early November, which triggered stop-loss selling, traders said.

“The break probably will not last long,” a Sydney-based trader said. “Funds are happy to buy on dips, and so will the central banks and the Chinese.”

The prospect of continuously loose monetary policy around the world will provide support to gold, perceived as a hedge against inflation as a result of rampant cash printing by central banks.

In the latest easing move by central banks, Australia’s central bank cut interest rates by a quarter of a percentage point to match a record low on Tuesday, stepping up efforts to safeguard the rich world’s most resilient economy from the risk of recession as a mining boom peaks.

Technical analysis suggested that spot gold is poised to fall to $1,692 after breaking support at $1,707,  market analyst Wang Tao said.

The slide in the precious metals complex was eye-catching, compared with the performance of other markets. Asian shares slipped on an unexpected fall in US manufacturing data, while the dollar index held near a one-month low.

A softer greenback usually boosts the appeal of dollar-priced commodities including gold, but traders said the stalemate in the US budget talks has made investors hesitant to jump in.

“Gold is still under pressure despite the support from currency markets,” said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.

“The physical market is quiet, there is some profit-taking, and we don’t see fresh buying interest from the funds.”

The fiscal cliff, $600bn of US tax hikes and spending cuts set to kick off in early 2013, threatens to push the world’s biggest economy into a recession.

In other precious metals, spot platinum dropped to a one-week low of $1,585.20 an ounce before recovering to $1,588.49. Spot palladium, which rose for the past five weeks straight, fell 1.1% to $678, heading to its biggest daily decline in a month.

Recent car sales data have helped platinum group metals, which are used widely in producing exhaust-reducing catalysts.

US vehicle sales in November raced to a five-year high for that month on a rebound from storm-ravaged October and the need to replace aging vehicles, leaving industry executives hopeful about 2013.

Last week, China’s industry and information technology ministry said the country’s car sales and output would both exceed 19-million units this year. In the first 10 months of the year, total vehicle sales gained 3.6% on the year to 15.7-million units