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June gold futures fell Friday, settling at $1,501.40 an ounce on the Comex division of the New York Mercantile Exchange, and were down 4.7% on the week. On a June futures chart, this is the lowest level since April 2011. On a weekly continuation chart, this is the lowest level for a most-active contract since July 2011.
On the year, gold prices are down 11%. Gold prices reached in bear-market territory, since they are down 22% from the all-time high of $1,923.70 set in September 2011 to Friday’s settlement.
Most-active May silver fell on the day and the week, settling at $26.331, down 3.2% on the week.
In the Kitco News Gold Survey, out of 34 participants, 21 responded this week. Of those 21 participants, 10 see prices up, while 10 see prices down, and one sees prices moving sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.
Gold prices fell to nearly two-year lows when it fell through last week’s low of $1,539.40, triggering resting sell orders. The market initially found support at $1,525 but its pause there was short-lived when selling pushed gold through $1,525 and triggered more resting sell orders, known as sell stops.
“The market uncovered a treasure-trove of sell stops under $1,525,” said Sean Lusk, precious-metals analyst at Ironbeam. “We just saw a cleansing of positions here.”
Lusk said negative sentiment in gold has been building over the past few months with the equities making record highs and investment banks reducing their price forecasts for gold. This week, Goldman Sachs caused a stir in the market when it called for investors to short, or sell, gold.
Additionally, Lusk said with more Federal Reserve governors talking about ending quantitative easing on the idea that the U.S. economy will improve later this year, gold found more pressure. Meeting minutes from the March Federal Open Market Committee from Wednesday showed more Fed governors are seeking to scale back the QE program. On Friday, Boston Fed President Eric Rosengren reiterated these ideas Friday on CNBC.
Gold fell even as equities dropped and was unable to capitalize on the weakness in stocks. Equities, which had put in record highs as recently as Thursday for the Dow Jones Industrial Average and the Standard & Poor’s 500, were pressured by the poor retail sales and profit taking.
U.S. retail sales in March fell 0.4% versus a decline of 0.1% expected. This was the largest drop since June. Economists said a cold snap in March may have trimmed sales, although they also said this might be a sign that higher taxes and sluggish job creation are hurting the U.S. economy.
In other economic news, the producer price index was released and showed wholesale inflation was lower than expected, with the overall index down 0.6% in March versus 0.3% expected, as energy costs fell. The core PPI was up 0.2%. Over the last 12 months, the overall PPI index is up 1.1% in March versus 1.7% in Feb.
Lusk said the PPI data shows that inflation is not an issue, which also weighed on gold Friday.
Charles Nedoss, senior market strategist with Kingsview Financial, said the weakness in equities is getting overlooked as investors sell gold. He said aside from the selling cues from technical charts as prices broke through important support levels, there might be something more concerning to gold investors.
The news report this week that Cyprus might have sell some of their gold reserves to help fund their bailout jarred market participants, he said. The Cypriot central bank said that any decision about gold sales is up to them. Gold analysts said that even if the sales happened, the amount that would be sold – about 10 metric tons – would not have a big supply impact on prices. Yet, Nedoss said, that’s beside the point.
“The question is, what about other countries in the EU? Are they going to be required to put some skin in the game and sell their assets? What about Portugal? What about Italy? They have more gold,” he said.
Nedoss said there are some thoughts that even though the ultimate decision to sell the gold rests with the central bank and not the country, that doesn’t mean they can’t be coerced. It’s that uncertainty and the potential of what that might mean in the future that is likely weighing on gold, he said.
According to Reuters, eurozone finance ministers approved a 10 billion euro bailout for Cyprus on Friday. The Reuters story said in order for Cyprus to meet its financing needs over three years, the country will need to find 13 billion euros by itself, likely coming from the closure of its Laiki bank and the restructuring of the Bank of Cyprus.
Also in Europe, next week is parliamentary voting for the next Italian president. Brown Brothers Harriman said among those seeking to replace current Italian President Giorgio Napolitano is Prime Minister Amato, who implemented the tax on all savings in the early 1990s to enter the eurozone. Napolitano’s term ends May 15.
For price direction Lusk said it’s possible gold might try to probe the $1,400s area again after doing that initially on Friday. “Long term, I think gold has value, but right now, you just have to let the tide go and not step in front of it,” he said.
Nedoss said now that $1,500 broke, he said the next key support is $1,469.70, which is the 200-week moving average. He said he wants to watch how the market acts early next week. “With breaks like this, markets have a way of snapping back to (mess with) as many people as possible. It could rally $40, $50 and (hurt) all the new short” position-holders, he said.
Some analysts said watch whether physical buying picks up after this dip in gold. Chinese buyers have stepped up when prices have fallen and analysts said the Chinese response will be critical for any price support. Earlier this week Hong Kong Census data for February shown a strong month of gold re-exports into China, with 72 metric tons exported directly to China, just under the December record of 89 tons. This came as prices fell about $200 an ounce between those three months. “The pattern certainly displays an even greater demand for gold by China during price (falls),” said TDS.
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