Source: MarketWatch
San Francisco— Gold futures fell over 2% Monday to tally a two-session loss of $26 an ounce, sending the April contract to its lowest closing level in more than five weeks.
"Gold is still correcting the overbought condition that had existed," said Ned Schmidt, editor of Value View Gold Report. "A meaningful low for the short term is possible" Tuesday.
Gold for April delivery finished the session down $11.40 at $542.10 an ounce on the New York Mercantile Exchange, its lowest close since Jan. 5. It fell as low as $541.80, an intraday level not seen since Jan. 9.
On Friday, gold prices closed out a volatile week with a 3.2% loss, losing $14.60 an ounce for the day. Traders were sanguine about the move, which they said could be expected after the bull run of the past six months.
Maybe some of the headlines — on Iran, protests following a Danish newspaper's cartoons depicting the Prophet Muhammad, Senate hearing of all kinds and a record trade deficit — "have worked their way lower on the 'hit parade' chart and they have become 'familiar noise' to most of us," said Jon Nadler, investment products analyst at bullion dealers Kitco.com.
"But in fundamental terms, nothing has really changed," he said. "The same factors and motives that drove investors to gold over the last three months remain very much in place."
Emanuel Balarie, a senior market strategist at Wisdom Financial, said traders should see the recent weakness in gold prices as a buying opportunity.
"In the last several weeks, gold has dropped 5% from its 25-year high," Balarie said. But "demand for gold as an alternate currency, global demand from central banks, and the continued demand for jewelry in China, India and emerging economies will continue for several years to come."
A peek ahead
Looking ahead, Peter Spina, an analyst at online resource GoldSeek.com said the $525 level is the next downside target for gold prices, "with a failure to hold this level resulting in $510."
"This week looks to be a difficult one for gold and silver, but the market will find terrific support down below," he said.
U.S. Federal Reserve Chairman Ben Bernanke will offer his first congressional testimony on Wednesday.
"How the markets will react to the new chairman's words is a serious unknown," said Value View Gold Report's Schmidt. Former Chairman Alan Greenspan "got us to over $500 — Bernanke will do the rest and give us $1,300 gold," he said.
Given that prospect, "gold buyers should take advantage of any lower prices late in the week," Schmidt said.
Longer term, "fundamentals are supportive, amid accelerating demand from emerging economies and constrained output levels," economists at Action Economics said earlier Monday.
In the short term, however, a lot will depend on how investment funds behave after a week in which many trimmed their exposure to higher gold prices. Gold has lost about $25 from its peak level last week.
"Price action around the previous pivot level of $540 will be interesting in coming sessions," they said.
On the supply side, copper inventories were down 743 short tons at 44,168 short tons as of late Friday, according to the Nymex.
Gold supplies were down 10,329 troy ounces at 7.38 million troy ounces, and silver stocks were unchanged at 125.5 million troy ounces.
In other metals trading Monday, March silver futures closed down 26.2 cents, or 2.8%, at a three-week low of $9.118 an ounce.
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