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Gold Prices Break Below $1,300; What’s Next?

(Kitco News) - A stronger U.S. dollar Tuesday created some technical selling pressure in gold, which then led to some panic selling as prices were at one point down more than 2% on the day; however, analysts note that despite strong selling pressure, gold is still in a bull market.

gold prices are at their lowest point since the Brexit referendum in late-JuneFor the first time since Britain voted to leave the European Union, gold prices have fallen below $1,300 an ounce. During the session, gold prices fell to a low of $1,283.60 an ounce. December gold futures last traded at $1,286.40 an ounce

The silver market has seen as even sharper drop with prices at its lows down well more than 3% on the day. December Comex silver futures last traded at $18.255 an ounce.

Although the magnitude of gold’s drop Tuesday has caught some market participants by surprise, many were waiting for a correction after prices have traded sideways since early July.

Ole Hansen, head of commodity strategy at Saxo Bank, noted that gold hasn’t seen a proper test of support levels since mid-May, adding that this correction was needed.

Bill Baruch, senior commodities broker at iiTrader, agreed that although the yellow metal is seeing a steep selloff, the correction is a health party of a bull market.

Analysts are also warning investors to use caution as Tuesday’s selloff could just be the beginning of the along-awaited correction.  Sean Lusk, director of the commercial hedging division at Walsh Trading, said that he could see panic selling continue to drive prices to the 200-day moving average, which is around the $1,250-an-ounce area.

“I think this is just the start and I would like to see prices drop another $25 before I buy again,” he said.

Baruch also warned that investors need to pay attention to a key support area between $1,250.90 an ounce and $1,258.40 an ounce. He noted that the biggest hurdles this week will be major U.S. economic data, including September’s nonfarm payrolls report to be released Friday.

“I think good data this week will put the market at this level,” he said. “However, gold’s bull case is not over. If the employment numbers are disappointing, then I think we could see gold back up to the $1,350 level.”

Although $1,250 is a key line in the sand for some analyst, Hansen said that even if prices break this area, gold will still remain in a bull market. He said that gold can fall as low as $1,210 and still maintain its uptrend.

For him, he said the key obstacle in the near term is the U.S. dollar. Continued strength in the greenback will inevitably push gold lower, he added.

 

By Neils Christensen of Kitco News; nchristensen@kitco.com

 

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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