Gold edges higher but seen vulnerable to selling pressure

Spot gold to end year at $1,200 — ABN AMRO’s Boele

16:24 October 13, 2016

LONDON: Gold prices ticked higher on Thursday though analysts said they risked coming under pressure if strong US economic data boosted the likelihood of a December interest rate rise.

Spot gold was up 0.4 per cent at $1,259.20 an ounce at

1113 GMT, while US gold futures climbed 0.6 per cent to $1,261.20 an ounce.

Gold has risen nearly a fifth this year but has struggled in recent months. It has shed 7 per cent since early September, including a slide of over $40 on Oct. 4, its biggest one-day drop in 15 months, after strong US economic data.

ABN AMRO commodity strategist Georgette Boele said if the bullish investors who are dominating the market at the moment started to sell it could create a snowball effect.

“It seems to be just technical trading so far today but prices are looking for a new driver which can push it in either direction,” she said, adding that US retail sales data due on Friday could be a trigger.

“There’s a position risk with overall positions massively long, enormous, and people may get a bit nervous and give up on the idea that the price could go higher.”

Boele downgraded her gold forecast on Wednesday to negative, saying in a note that the year’s upwards trend was over and she forecast a year-end gold price of $1,200.

A drop of gold and silver prices below their 200-day moving averages was also a negative technical signal, she said.

Several voting US Federal Reserve policymakers judged a rate rise would be warranted “relatively soon” if the economy continued to strengthen, according to the minutes of the Fed’s September policy meeting released on Wednesday.

Since gold pays no interest, the precious metal is highly sensitive to increases in US interest rates, which would also typically strengthen the dollar in which gold is priced.

Gold got some support on Thursday after world stock markets stumbled to three-week lows following September trade data from China that showed a sharp decline in exports, reviving concerns about the health of the world’s second-biggest economy.

China’s September exports dropped 10 per cent from a year earlier, far more than markets had expected, while imports unexpectedly shrank 1.9 per cent after an encouraging 1.5 per cent rise in August.

“There is a lot of buying on the physical side in Asia, mainly from China and buying from exchange-traded funds after recent dips,” said a precious metals trader with a bank based in China.

Among other precious metals, silver rose 0.3 per cent to $17.50 an ounce, while platinum fell 0.2 per cent to $940.36 an ounce.

Palladium was down 1.2 per cent at $641.50 an ounce after earlier touching a low of $636.72, its weakest since July 18.