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Gold hits the dust but not rock bottom

The price of gold hit a 3½ month low as Chinese demand faltered and exhibited no signs of a recovery. Saxo Bank’s Head of Commodity Strategy, Ole Hansen, believes this technical retracement will continue in the short-term as signs of an economic rebound in the US continue to trickle in.

On Tuesday, gold suffered a strong technical setback as prices broke below significant support levels. Increased selling pressure caused the biggest one-day decline for the precious metal this year. However, gold prices have now found support at USD 1,262.5 per ounce according to Ole, which is the 61.8 percent retracement from the rally that began at start of the year.

Slowing demand from China accelerated the downward momentum. Chinese imports of gold from Hong Kong fell to a 14 month low in April. This decrease in demand contributed to the price of gold dropping to USD 1,260.74, its lowest level since February. Chinese buyers failed to re-enter the market despite this sharp decline, adding to the bearish outlook for gold. The decline was worsened by stronger than expected economic data out of the US.

Surprisingly, durable goods manufacturing and consumer confidence increased in the US. This news caused the S&P 500 to reach a new record high, closing at 1,912.28. On May 13th the S&P 500 closed above 1,900 for the first time, setting the previous record at 1,902.17. The positive gains for US equities drew further interest away from gold as an alternative investment.

Ole believes that this bearish momentum is only temporary though and renewed buying interest could be triggered around USD 1,250 per ounce.

02:01 minutes
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