Gold prices sell off but anything above $1,450 is still a buying opportunity - analysts
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(Kitco News) Gold prices continue to trade under pressure as positive trade headlines are feeding investors’ risk-on appetite, but any dips towards $1,450 will still be viewed as buying opportunities in gold, according to analysts.
“Price dips towards $1450/oz are likely to continue to be viewed as buying opportunities,” said Standard Chartered precious metals analyst Suki Cooper. “In our view, prices have held up well given the good news, increased risk appetite and soft physical market.”
On Thursday, gold prices hit three-month lows as stock markets continued to rally on positive U.S.-China headlines. December Comex gold futures were last trading at $1,464.50, down 1.92% on the day.
One of the largest near-term downside risks to gold prices is U.S.-China trade talks progress, said Cooper.
The latest development in the ‘Phase One’ trade deal saga was China announcing that it had agreed with the U.S. on removing existing trade tariffs without specifying any timetables.
“The trade war started with tariffs, and should end with the cancellation of tariffs,” Gao Feng, a ministry spokesperson for China’s Commerce Ministry, said at a news briefing on Thursday.
Near-term price action in gold is likely to be range-bound while investors wait on the sidelines for a good buying opportunity, said Standard Chartered.
"We remain constructive on the gold outlook, but believe that near-term price action will remain range-bound, given the demand gap created by a weakening physical market and softer central bank buying,” Copper noted. “Tactical positioning was light ahead of the October FOMC meeting, in comparison with the periods ahead of the two previous FOMC meetings when the market had anticipated a rate cut. Open interest data implies that investors were waiting on the side-lines for a buying opportunity.”
In the meantime, some tactical investors are likely to use positive U.S.-China headlines as opportunities to make a profit, Cooper added.
“Gold prices initially held onto their gains, despite positive developments surrounding the U.S.-China trade negotiations that could curb some safe-haven flows. Tactical investors are likely to take profit on further positive headlines,” she said.
As gold prices fell below $1,480, some sell stops were triggered and gold moved down through the $1,470 lows, RBC Wealth Management managing director George Gero pointed out.
“More cascading sell stops in gold as we broke through $1,480 bigger support and $1,470 lows,” Gero wrote. “Tailwinds became headwinds for now. High volume and some liquidation comes to play with very large inflow to ETF holdings recently … Overbought signals worried traders.”
Earlier on Thursday, TD Securities warned that a drop below $1,480 could signal that gold is running out of steam.
“Traders are watching the $1,480/oz range, which has held over the past few weeks, as a break below could imply to the collective psyche that the recent price strength is coming to an end,” the bank’s strategists said.
A more intense selloff in gold could still come, they added.
“With dry-powder analysis still suggesting that the average bull continues to hold an above average position size, we think some length could be anxiously looking for an exit … In the midst of CTA selling, the more upbeat news on the trade file could help other gold bugs to liquidate their holdings,” strategists at TD Securities said.