Gold Prices Have Room To Fall Further After 2% Drop
(Kitco News)- Gold prices have fallen belowcritical support at $1,300 an ounce and while the market is oversold, there isstill room for prices to move lower, according to some analysts.
Gold has finally moved below itsrecent range as the market has been unable to withstand rising interest-rateexpectations, which have pushed U.S. 10-year bond yields above 3%, theirhighest level since 2011.
June gold futures last traded at $1,294.20 an ounce, down almost 2% on the day.
“The rise in bond yields meansthat a June rate hike is now baked into the cake, so we can see gold prices alot lower in the near term,” said Phillip Streible, senior market analyst atRJO Futures. “I think gold could fall to $1,250 an ounce before all the dustsettles.”
Ole Hansen, head of commoditystrategy at Saxo Bank, agreed that gold is suffering because of shiftinginterest-rate expectations. He explained that with oil prices hitting a multi-yearhigh above $70 a barrel, this is raising inflation fears in the marketplace,and the Federal Reserve could be forced to raise interest rates to keep inflationin check.
Hansen added that gold’s lossesTuesday are broad-based as it is losing ground against other major globalcurrencies like the euro.
“Right now the floodgates haveopened and I think we could see momentum push prices much lower,” he said.
Along with growing inflationexpectations, the U.S. dollar received a boost Tuesday following “solid” Aprilretail-sales data and stronger-than-expected manufacturing data from the NewYork Federal Reserve.
Looking ahead, Hansen said thatfirst line in the sand he is watching is $1,286 an ounce.
“If that level breaks, theninvestors will start to questions whether this is more than a correction,” hesaid.
Darin Newsom, senior analyst atDTN, said that he is also watching the $1,286 level as this represents a keytrend line from the 2015 lows.
While the gold is suffering fromsignificant technical-chart damage, there is still a modicum of hope thatprices can turn around.
Hansen said that if equitymarkets continue to drop, investors could jump into gold as an alternativesafe-haven investment. He added that if long-term inflation pressures movehigher, then gold still looks attractive as real interest rates will remainlow.
Streible said that one way goldbulls could play the market is by buying longer-term call options. He addedthat he like the idea of buying December $1,320 call options. He added thatinvestors should look at options above gold’s 200-day moving average, whichcomes in at $1,315.70 an ounce.
“I think you need to give goldsome time to recover after this,” he said. “There is nothing in the immediatefuture that will drive prices higher.”
By Neils ChristensenFor Kitco News
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