Gold Breaks Below $1200 Support Level

Gold is trading at 1215.75 in the Asian session down by just $1 after a rocky Monday holiday. Gold fell in futures trading on the Memorial Day holiday to trade as low as 1199 only to recover overnight. Silver fell 99 points to 16.17 right on the heels of gold while Platinum gained over $11 to 981.50. Gold showed little reaction to the decline in the US dollar on Tuesday morning as traders booked profits after the Fed inspired rally last week. The greenback is trading at 95.55 after opening at 95.72.

 

Business Recorder reported that gold fell below $1,200 for the first time since mid-February on Monday, as comments from Federal Reserve chief Janet Yellen on the likelihood of higher US interest rates sent the dollar to two-month highs. The Fed should increase interest rates in the coming months if the economy picks up, Yellen said on Friday, bolstering the case for a rate hike in June or July. St. Louis Fed President James Bullard said on Monday global markets appeared to be “well-prepared” for a summer rate hike. An increase in US rates would raise the opportunity cost of holding gold, which does not earn interest. It would also bolster the dollar, making gold more expensive for holders of other currencies.

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Longer term, however, negative interest rates should boost gold, said John Campiglio, executive vice-president of corporate development for Spratt Inc. Minneapolis Federal Reserve Bank President Neel Kashkari said last week that negative interest rates, used by central banks in Europe and Japan to stimulate their economies, would only be a last resort for the US central bank. “The world in general is not accustomed to this era of negative interest rates and in that environment, I think gold provides an alternative form of currency,” Campiglio said. Gold fell as much as 1 percent to $1,199.60 an ounce, its lowest since February 17, and was down 0.6 percent at $1,205.20 an ounce by 2:18 pm ET (1818 GMT). The metal was on track for nine sessions of losses, its longest losing streak since March 2015. US gold futures dropped 0.8 percent to $1,207.4.

 

Trade was thin with public holidays in Britain and the United States on Monday. “The (next technical) support is at $1,185 and a break of this level will open the floor towards the $1,160 mark,” said Naeem Aslam, chief market analyst at Think Forex UK. “Money managers are reducing their bullish bets and … hedge funds are strongly bullish on the dollar.” Hedge funds and money managers cut their bullish bets in US gold futures and options to their lowest in almost two months, US government data released late on Friday showed. Positions were reduced on a similarly radical scale in early November 2015 when the Fed prepared the market for a rate hike in December, Commerzbank analysts said. “At that time the gold price dropped from $1,200 to $1,050 by mid-December,” they added. “The gold price could still fall by around another $50.”

According to some analysts, gold prices remain on the defensive Monday, in thin holiday activity, as traders continue to price in a rate hike from the Federal Reserve some time during the summer.

Both U.S. and British markets are closed for holidays Monday and thin volume helped push gold future below the key psychological support level at $1,200 an ounce in electronic markets. Overnight gold prices hit a session low of $1,199 an ounce. Although prices have managed to push off those lows, they are still under pressure, last trading at $1,207.70 an ounce, down 0.50% on the day.

Analysts said that traders are still digesting Fed Chair Janet Yellen’s comments Friday. At an event at Harvard University, she said she was optimistic that the U.S. economy will continue to expand and added that it could be appropriate to raise interest rates in a few months.

Despite growing interest rates pressures, he said he will be watching to see if gold can hold key support levels. “Gold has had a significant decline throughout May (-7.7%) and one would think we would be approaching an interim bottom in the near future. Next important supports include the 38.2% retracement of the Dec-May rally, the psychological $1200 level and then $1191,” he said in a report Monday.