Analysts Watching $1,200 In Gold As EM Currency Uncertainty Grows
(Kitco News)-Critical support in the gold market is holdingfor now but analysts are keeping a close eye on the $1,200-an-ounce level asthe U.S. dollar finds new momentum in the marketplace.
Growing uncertainty and volatility in emerging-marketcurrencies is weighing on gold prices as the U.S. dollar index trades atsession highs. In particular, the Argentina peso and Turkish lira have seensignificant selling pressure. The peso is trading at historic lows against theU.S. dollar. The U.S. Dollar Index last traded at 94.75 points.
The economic uncertainty in Argentina isparticularly acute as the government on Wednesday asked the InternationalMonetary Fund for an early release of a $50 billion loan. Currently the peso isdown 45% on the year against the U.S. dollar. Many international investors areworried that Latin America’s third-largest economy could default on its significantgovernment debt.
With renewed interest in the U.S. dollar,Comex gold futures have been pushed to session lows as it hold support at$1,200 an ounce. December gold futures last traded at $1,206.30 an ounce, down0.42% on the day.
In the cash market, gold dropped belowcritical support; gold prices on Kitco.com show the metal last trading at $1,199.70an ounce, down 0.55% on the day.
Bart Melek, head of commodity strategy at TDSecurities, said that while gold has seen a few positive sessions, the preciousmetal will struggle as long as there is a bid behind the U.S. dollar.
“Until the U.S. dollar starts movingmaterially lower, gold prices will struggle to push past $1,200 an ounce,” hesaid.
Not only is the U.S dollar strength hurtinggold but analysts noted that central-bank activity could be weighing on theprecious metal. Melek said that he suspects some emerging-market central banksare swapping gold for U.S. dollars, to get important credit and support theirdomestic currencies.
Phillip Streible, senior market analyst atRJOFutures, said that he also expects that some central banks are selling theirgold to shore up their currencies.
Although gold futures are holding importantsupport, Streible added that gold investors were dealt a big blow earlier thisweek after prices were unable to break through initial resistance at $1,220 anounce.
“I think we are seeing some investors give upon gold after it failed to break out,” he said. “This latest sell-off suggeststhat we are headed back below $1,200 an ounce.”
Streible said that there are also reports thatmost South American commodity producers are aggressively selling their productsto raise U.S. dollars to avoid a potential currency crisis. He explained thatthis aggressive commodity selling will weigh on gold and the general market.
Streible added that the key level to hold is$1,189.
“If we fall back below $1,200, then investorsbetter hope and pray that their life vest at $1,180 holds because if thatbreaks, then the Titanic is going down,” he said.
Although gold prices could struggle in thenear-term, Melek said that this EM volatility could ultimately be bullish ongold. He added this uncertainty could force the Federal Reserve to halt itsmonetary policy tightening.
“Monetary policy not just in the U.S. willhave to respond to the global uncertainty and that will be positive for gold,”he said. “I don’ think we need an obituary for gold just yet.”
By Neils ChristensenFor Kitco News
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nchristensen@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.