Source: Marketwatch
San Francisco— Gold futures dropped Thursday to close with a loss of almost $13 an ounce and silver prices gave back nearly 14%, prompting concern that the weakness may signal a broader correction in the metals from their more than two-decade highs.
"As is so often the case in the precious metals, corrections tend to be vicious and quick," said Peter Spina, an analyst at GoldSeek.com. "With the major move higher over the past several sessions, the gold market is working off some of the excesses."
Gold for June delivery fell as much as $25.50, or 4%, to a low of $610.50 an ounce on the New York Mercantile Exchange, its lowest level since Monday, after closing out Wednesday's session at a more than 25-year high of $636. That's the biggest one-day fall since mid-December 2005, according to Nadler.
The June contract recovered a bit to close down $12.90, or 2%, at $623.10 an ounce, but it traded as low as $615.90 an ounce in Thursday evening trading.
Gold will find support in the low $600s, then around $580 — "should it need to correct a bit more," said Spina.
But given the price drop, Peter Grandich, editor of the Grandich Letter warned: "it's time to take out a caution flag."
"Many classic signs of frothiness now abound in commodities in general and while no one can ever pinpoint exact tops, this is not a good time to first become aggressively bullish," he said, warning that "a sharp 10%-20% correction is lurking out there."
Indeed, "at the very least this is a warning sign to the bulls that the longer-term uptrend may not be sustainable," said Tim Evans, a senior analyst at IFR Markets.
"Prices have reached a level where they are unstable" and this likely "establishes a cap for the market that is going to be hard to take out," he said.
At the moment, "it would be tempting to sell short, but there are no low-risk trades here because of the volatility," he said.
Silver origin
Despite gold's double-digit dollar decline Thursday, silver was actually the biggest loser among the metals futures.
May silver futures dropped $1.997, or 13.8%, to close at $12.525 an ounce after trading at a 23-year high of $14.58 on Wednesday.
Gold's weakness "originated in the silver pits," said Jon Nadler, an investment products analyst at bullion dealers Kitco.com.
There's "major profit-taking by funds that had loaded up…in anticipation of the silver ETF [exchange-traded fund]," he said, and since the ETF still has not seen the light of day, "funds decided not to be pigs and took some money off the table."
This in turn started a pullback in gold, Nadler explained. Traders are "much more inclined to take profits in the metal that had already had the largest percentage run up to the moment," he added.
From here, "silver could potentially dip as low as $11.50, but the growing interest from the investment community will easily keep the metal in double-digits for some considerable time to come," said James Moore, an analyst at TheBullionDesk.com.
Not so bad
At the same time, gold's decline Thursday may not be as bad as it looks.
Gold would have to drop around $100 in one day to match a 15% decline in silver prices, said Nadler. From that perspective, "gold is holding up remarkably well."
Gold flirted with the $650 mark early Thursday in electronic trading, climbing as high as $649. There are "plenty of buyers in the wings" from $580 to $590 to $605," said Nadler.
"Although prices have scaled back…and gold stands ready to shed a few more dollars in an attempt to weed out weak latecomers, the market remains robust," he said, noting that "there are no signs of a reversal in Iranian nuclear development policies."
"Oil supply disruption fears continue to underpin the (already) stressed commodities markets," he said, so "gold prices are factoring in not only the political global uncertainties of the moment, but also the inflation certainties of tomorrow."
The June contract for crude futures surged to a record high above $74 per barrel in electronic trading early Thursday, but has since pulled back by around $1.
Overall, "the man in the street…is choosing not to have his hard-earned wealth remain exposed to the erosion of purchasing power of paper currencies," and "the man in the streets of Tehran is reported to be heavily hoarding gold coins — for an entirely different reason. Thus, the gold stampede (corrections notwithstanding) continues unabated," said Nadler.
Other metals lost ground Thursday, July platinum closed down $22.10 at $1,108.80 an ounce after a futures record of $1,136, and June palladium fell $23.95 to end at $349.90 an ounce. May copper added 0.25 cent to close at $2.96 a pound.
"Copper is having trouble eclipsing the $3 mark and, with this market in severely overbought territory, it may need to correct a bit and then consolidate for a pe
Share This Post
Choose Your Platform: Facebook Twitter Linkedin