Gold sinks below $1,600 amid talk of ‘death cross’
new
Feb. 20, 2013, 12:07 p.m. EST
By Myra P. Saefong and Sarah Turner, MarketWatch
SAN FRANCISCO (MarketWatch) — Gold futures tumbled below $1,600 an ounce
Wednesday, pressured by strength in the dollar ahead of the release of
minutes from the U.S. Federal Reserve’s meeting last month as talk of a
so-called “death cross” in gold prices spooked investors.
“Feels like a herd mentality to get out of gold right now,” said Jeffrey Wright, managing director at Global Hunter Securities.
Gold for delivery in April
GCJ3
-1.60%
dropped $25.20, or 1.6%, to $1,579 an ounce on the Comex division of
the New York Mercantile Exchange after a low of $1,577.50. If prices
settle around these levels, that will mark the lowest close for a
most-active contract since late July.
The precious metal fell $5.30, or 0.3%, to settle at $1,604.20 an ounce
on Tuesday for its fourth straight loss, although it managed to hold
above $1,600 through that trading session.
Gold’s drop sparked talk of a “death cross” in the market among analysts Wednesday.
A death cross is “a crossover resulting from a security’s long-term
moving average breaking above its short-term moving average or support
level,” said Chintan Karnani, an independent bullion analyst based in
New Delhi. “Additionally, the long-term moving average becomes the new
resistance level in the rising market.”
In layman’s terms, “this implies that gold’s long-term bull run is over
and that it could be in a bear phase,” he said. “Fundamentals are there
as investors are shunning gold exchange-traded funds. Indian gold demand
is not there due to a nationwide strike today by workers.” Read: Could China ride to gold’s rescue this week?
But the death cross hasn’t truly been reached just yet, according to Ole
Hansen, head of commodities strategy at Saxo Bank, who said that the
200-day moving average for gold prices has been flat and the 50-day
moving average has been pointing slightly upward. Read The Tell blog: Gold ‘death cross’, if there is one, is not gold’s only problem.
“In the past, gold has reversed many a times between $1,530 and $1,550,”
said Karnani. “For gold to be in a long-term bear trend, it needs a
daily close below $1,520 for a week,” he said. “The next one week is
very crucial for gold prices. I am optimistic and do not expect gold
prices to fall below $1,470 under the worst-case scenario.”
FOMC minutes on tap
For now, the market is anticipating the Federal Open Market Committee’s
meeting minutes will “point to ways to lessen quantitative easing
measures over time” and “curtail asset buying efforts by year end,” said
Wright.
The FOMC will release the minutes of its Jan. 29-30 meeting later
Wednesday. HSBC analysts said that gold may see more downside if the
minutes show the central bank continued a discussion from its December
meeting over whether quantitative easing may either slow or stop well
before the end of 2013.
Reuters
“Anything less than the FOMC reiterating commitment to more purchasing and QE will send gold lower,” said Wright.
Strength in the U.S. dollar added pressure to dollar-denominated gold prices Wednesday, with the ICE dollar index
DXY
+0.31%
trading higher at 80.760, compared with 80.450 late Tuesday.
The gold market saw little reaction to the latest U.S. economic data.
Housing starts fell sharply in January while wholesale costs rose last
month for the first time in four months. See: More expensive vegetables push up PPI.
Also see: Housing starts slump as apartment building slows.
Among other metals futures, March silver
SIH3
-2.73%
dropped 68 cents, or 2.3%, to $28.75 an ounce, while March copper
HGH3
-1.19%
fell 3.5 cents, or 1%, to $3.62 a pound.
Platinum for delivery in April
PLJ3
+0.26%
sank $51, or 3%, to $1,646.50 an ounce, while March palladium
PAH3
-3.33%
fell $30.10, or 3.9%, to $734.05 an ounce. Both contracts gained more than 1% on Tuesday.
“[Platinum-group metals] demand may be curbed on reports of lower auto sales in the euro zone,” the HSBC analysts said.
“Automobiles in the euro zone tend to be diesel-fired vehicles which
have heavier platinum loadings relative to palladium, when compared with
gasoline-fired vehicles. As such, lower European auto demand weighs on
platinum more than it does for palladium, in our view,” they said.
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