· It’s a tale of two precious metals, one driven by safe-haven froth and the other physical demand. The bottom fell out of gold on Monday, driving it to a near-two-month low while palladium surged to record highs on fears of a supply deficit.
· U.S. gold futures for December delivery settled down $33.50, or 2.2%, at $1,472.90 per ounce on the Comex division of the New York Mercantile Exchage. The session low was $1,470.65, marking a bottom since Aug. 6.
· “The bottom has fallen out of gold for now and it’s partly because of technicals, after we broke below the Sept. 18 Comex low of $1,490.70,” said Philip Streible, precious metals strategist at RJO Futures in Chicago.
“We have a bearish head-and-shoulders pattern now and could go as low as $1,450 if the momentum stays," he added.
· Spot gold, reflective of trades in bullion, was down $27.67, or 1.9%, at $1,469.31 by 2:15 PM ET (18:15 GMT).
· Gold, which until last week held firmly at the key $1,500 bullish level, was also undone by a rampant dollar. The US Dollar index, measured against a basket of six currencies, surged to four-week highs of 99.113 on Monday as it became the preferred hedge again for investors seeking an insurance against the U.S.-China trade war.
· Gold has also lost much of the geopolitical risks that had been prevalent over the past two weeks, especially in oil, after Saudi Arabia’s quick action to restore output following the Sept. 14 attack on its energy infrastructure. Riyadh’s stance not to engage militarily with Iran, which it has blamed for the attack, has also deprived gold of any war premium risk from the attack.
· Still, Streible says he will not bet against gold returning to $1,500 in short order.
“This thing could change at a whim,” he said. “You’ve got a guy named Donald Trump, who’s got a cellphone with Twitter on it and he can move these markets 700 points at one time with just one tweet on China, and I can bet you it will not just be the dollar that’s moving.”
· Palladium bucked the trend in precious metals. Most-active futures on Comex settled down $5.40, or 0.3%, at $1,647.50 per ounce.
Palladium Futures got to an all-time high of $1,669.40 while spot palladium, reflective of physical trades, hit a record high of $1,702.20 before trading down $10.85, or 0.6%, at $1,674.95.
Prices of palladium, which serves primarily as an emissions-reducing agent for gasoline-powered engines, has risen about 33% this year and nearly 9% this quarter and September on fears of tight supply despite a weakening auto sector.
· “There is strong fabrication demand but a good part of this is speculative demand from investors who expect prices to rise and also people who are getting out of gold, silver and platinum because those prices are falling, some of them are shifting into palladium,” Jeffrey Christian, managing partner of New York-based CPM Group, told Reuters.
“There’s a lot of concern that there isn’t a lot of palladium around; a big part of that is people who own the metal don’t want to sell at current prices. They want to see how high the price goes before they keep their profits.”
· Although a clear majority of retail investors remain bullish on gold in the near-term, sentiment is at its lowest level since mid-June and has fallen for the last four consecutive weeks.
· Some gold analysts have turned more cautious, they are not ready to give up on the yellow metal’s long-term rally.
· Ole Hansen said that he expects gold prices to head lower next week but described the price action as “a weak correction in a strong uptrend.”
“I think the uptrend remains I place but we need to see it bounce from a lower price,” he said.
Hansen added that he would not be surprised to see gold prices test support at $1,450 in the near-term.
· George Gero, managing director with RBC Wealth Management said that he sees potential for bargain hunting to support prices next week; however, he added that a strong U.S. dollar continues to be a major headwind for gold and that might not change anytime soon.
“The world needs a safe haven and right now that is the U.S. dollar,” he said. “But because bond yields are so low it wouldn't take much for investors to once again see gold as the ultimate safe-haven.”
· Charlie Nedoss, senior market strategist with LaSalle Futures Group, described the price action as just a flushing out of weak hands in the marketplace.
He added that with gold price below their 50-day moving average his next target is support at $1,470 an ounce.
Reference: Investing, Kitco
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