Gold prices fell more than 2 percent on Tuesday as strength in the dollar following forecast-beating US retail sales data pushed it through key chart levels while silver hit a 2-1/2 month low. Selling accelerated sharply after gold prices broke through their 200-day moving average at $1,300 an ounce, having already picked up steam on a break of the 50-day simple moving average at $1,317, and of $1,307, formerly a resistance level.
Spot gold hit a low of $1,290.34 an ounce and was down 2.6 percent at $1,291.40 an ounce at 1246 GMT, on track for its biggest one-day drop since October 1. On Monday it hit a three-week high at $1,330.90, but buyers were quick to cash in gains. "Gold was weak all morning after yesterday's US data. Physical demand is (also) weak, so the selling brought it closer to the 200-day moving average, step by step," Heraeus trader Alexander Zumpfe said. "Finally it broke." Prices plunged by nearly $10 an ounce in the few minutes after that level gave way, he said.
US gold futures for June delivery were down $35 an ounce at $1,292.50. A Reuters survey showed on Tuesday that gold is expected to end 2014 just above $1,250 an ounce as an acceleration in US economic growth and strength in the dollar cool the price advance seen in the first quarter.
The poll of 28 analysts and consultants returned an average gold price forecast of $1,262.50 an ounce for the third quarter and $1,254.20 in the last three months of the year. "We believe the rally in the gold price during the first quarter is based on shaky foundations," Deutsche Bank analyst Michael Lewis said. Physical demand in top consumer China remained weak, with Shanghai prices trading at a discount of about $1 an ounce to spot prices.
Chinese firms may have locked up as much as 1,000 tonnes of gold in financing deals, a report from the World Gold Council said on Tuesday, indicating that a big slice of imports had been used to raise funds due to China's tight credit conditions rather than to meet consumer demand.
SPDR Gold Trust, the world's largest gold-backed exchange-traded fund and a good measure of investor sentiment, said its holdings rose 1.8 tonnes to 806.22 tonnes on Monday - the first increase since March 24. Silver prices tracked gold lower, hitting their lowest since February 4 at $19.24 an ounce, down 3.4 percent. They were later at $19.31 an ounce, down 3.1 percent.
Among other precious metals, palladium fell more than 2 percent after five straight days of gains, retreating from 2-1/2 year highs hit earlier this week on fears that US sanctions on No 1 producer Russia would curb supply and on prolonged mine strikes in South Africa. Spot palladium was down 2.6 percent at $785.50 an ounce, while spot platinum was down 2.4 percent at $1,425 an ounce.