Gold prices fell 2 percent on Wednesday, their biggest one-day drop in three weeks, as the dollar's jump against a basket of currencies and broad-based selling of commodities triggered sell stops, sparking a $20 price drop in less than five minutes. More than 2 million ounces of Comex gold futures were traded in that time.
Selling accelerated as prices fell through the $1,730-1,732 area, traders said, the metal's 10-day moving average and an area of resistance for much of November before prices broke higher on Friday. Spot gold hit a low of $1,705.64 an ounce and was down 1.8 percent to $1,709.56 an ounce at 1456 GMT. US gold were down 1.9 percent at $1,709.40. "Clearly if a trader was looking to take profit on his positions then one would finesse metal into the market slowly - so not profit-taking going on here," Sharps Pixley chief executive Ross Norman said. "More likely this could be a short play, with the seller looking to trigger stops below the market and thus extend the move lower significantly. If so, he certainly caught the market on the hop as the move is counter-intuitive with everything else that is going on in the economy."
Another analyst said the sharp fall suggested computer-driven speculative selling of gold, which hit a six-week high on Friday. "It seems like we are losing excuses to buy gold," Saxo Bank vice president Ole Hansen said. "The fact that we did not make any progress following the break on Friday could indicate that leverage buyers are still not prepared to engage, or they are closing down shop for the year." Commodities fell across the board on Wednesday, in line with stock markets and nominally higher-risk currencies like the euro.
US Senate Majority Leader Harry Reid expressed disappointment on Tuesday over slow progress in finding a compromise to avoid $600 billion in tax increases and spending cuts due to start in January, a combination known as the fiscal cliff. Even as the market was buffeted around by wider forces, investors are still clinging to gold's appeal as an ultimate haven from risk. Uncertainty surrounding the fiscal cliff could yet prove positive for the metal.
This was demonstrated by holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, hitting a record high of 1,345.813 tonnes on Tuesday. Strong support for gold is seen at $1,705 an ounce and below that at $1,700, a key psychological point of support. "We continue to be bullish so long as gold holds above the 1705/06 lows from mid-November," ScotiaMocatta said in a note. Among other precious metals, silver fell in line with gold to a one-week low at $32.89, and was later down 2.8 percent at $33.06 an ounce.
Holdings of the biggest silver ETF, the iShares Silver Trust stayed near a two-month low of 9,818.07 tonnes. Silver is notorious for its volatility. The metal burned the fingers of many investors last year during its surge to a historical high and a subsequent tumble that saw prices fall more than a third within 10 trading days. Spot platinum was down 1.5 percent at $1,584.50 an ounce, while spot palladium was down 2.2 percent at $650.22 an ounce.
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