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.
Traders are closing the books on gold’s worst daily performance in almost three years and some analysts are warning investors that there could be more selling during the next few days.
Tuesday, December gold futures settled the day at $1,269.70 an ounce, losing $43 during the session, this is the precious metal’s biggest daily loss since June 26, 2013. Silver settled the day at $17.775 an ounce, losing more than 93 cents on the day, its biggest one-day loss since June 7, 2012.
According to analysts, gold’s selloff was triggered by a rally in the U.S. dollar after Richmond Fed President Jeffrey Lacker said that there was a strong case to raise interest rates. He said that rates should be about 1.5% higher than current levels. However, Lacker is not currently a voting member of the Federal Open Market Committee.
Gold prices are down more than 2.5% and silver prices are down more than 4% on Tuesday and one international bank is warning that prices could continue to push lower now that the selling flood gates have opened. “Is the worst behind us? We don’t think so. If US economic data, including the US employment report on Friday, came in better than expected expectations for a Fed rate hike this year and next year will increase, leading to a higher US dollar and lower gold and silver prices. This means that the downside in gold and silver prices has further to go in the near-term,’ say analysts at ABN AMRO. The bank warned that investors need to keep an eye on gold’s and silver’s 200-day moving average at $1,257 an ounce and $17.10 an ounce respectively. “If gold and silver prices break below these levels, this year’s uptrend is over.”
"(Lacker) started the assault on gold by indicating that the Fed should be much more aggressive in its stance on interest rates," said Phillips Streible, senior commodities broker for RJO Futures in Chicago. Margin calls appeared to "step up" after gold fell below $1,300 and silver below $18.50, forcing those holding long positions to either liquidate or meet requirements, he said.
The move was caused by "continued dollar strength, and traders looking for stops below such a big level," Saxo Bank's head of commodity research Ole Hansen said.
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