By Debbie Carlson
Gold prices fell to eight-month lows this week, pressured by a stronger U.S. dollar and rising real interest rates, and market watchers said if gains by the dollar and stock indexes continue, gold prices could slip to $1,200.
That is about $14 from this week’s lows, but is also not far from the December 2013 low of around $1,180, considered an important support point.
December gold futures fell Friday, settling at $1,216.60 an ounce on the Comex division of the New York Mercantile Exchange, down 1.2% on the week. December silver fell Friday, settling at $17.844 an ounce, down 4% on the week. This was the lowest price in four years for silver.
GSR Comments: Gold reaching levels in July and December 2013. Notice that when ever RSI is oversold, there is a bounce that follows.
GSR Comments: Gold to Silver Ratio has also reached extreme levels similar to July 2013.
In the weekly Kitco News Gold Survey, out of 37 participants, 24 responded this week. Of those, seven see higher prices, 13 see lower prices and four see prices trading sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.
GSR Comments: Pessimism (Kitco Survey) is high which usually means a bottom is close by.
Gold prices fell this week as the U.S. dollar rose to new highs, along with real interest rates following the Federal Open Market Committee meeting. Policy-makers said they would keep interest rates low for a “considerable time,” but their collective forecasts suggested that whenever they do hike the federal funds rate, they could do so more quickly than what was reflected in the last forecasts in June.
Mike McGlone, director of research in the U.S. for ETF Securities, said the U.S. dollar and equities strength are hampering gold and it’s likely to remain that way until something turns in either of those markets.
“The environment is still bad for metals. The main thing that hasn’t changed is the number one asset class is drawing capital – that’s equities. Until that stops,” gold will be under pressure, he said.
Rob Haworth, senior investment strategist, U.S. Bank Wealth Management, said the dollar strength is likely to continue “well into next year.”
“We’re reaching highs we haven’t seen in a couple of years, there seems like there is room for a pause to refresh the dollar,” Haworth said. “But the fundamentals for the dollar remain fairly constructive at this point. We have higher interest rates than in Europe, we’re on the cusp of raising interest rates, our economy is healthy, we think the fundamental trend of stronger dollar continues into next year.”
Homes sales data are on tap for next week with existing home sales on Monday and new home sales on Wednesday. Economists note that existing home sales have risen steadily since March, although new home sales have slowed since then. Market watchers will see if new home sales data remains sluggish, particularly after Thursday’s data showing a decline in single-family home permits. Durable goods and the third estimate of gross domestic product are also slated for release.
Weak economic data may cool off the dollar and give gold a bounce, traders said.
There are geopolitical risks around the world, Haworth said, which could lend commodities some support, but overall “the fundamental trend seems to be negative for gold.”
Gold prices may try to touch the $1,200 area next week, after getting close to it this week. Just under there are the June 2013 and December lows of around $1,180. If gold goes to those areas, it could cause “some significant stress” for gold miners, McGlone said. Miners already slashed budgets after the 2013 drop in gold prices and the return to $1,200 gold could cause some worries, too.
Market watchers said there is a caveat to weaker gold prices and that is the yellow metal has fallen far and fast this month and it might be due for a slight bounce. They caution it doesn’t change the trend, but with so many participants selling gold, the losses may be temporary overstated.
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