Daily Gold Update

Source: MarketWatch

San Francisco— Gold futures edged higher Wednesday afternoon, as a fall to a three-week low under $550 an ounce sparked renewed physical and investment demand.

"We are undergoing a healthy bull market consolidation, with the likelihood there may be more pain to the downside," said Peter Spina, an analyst at GoldSeek.com.

"Should the $540-$545 spot support give way, we should then look for the next strong technical pullback target around $525," he said.

Even so, "physical demand will remain supportive," with consolidation building a floor from which the market can then see the next move up to $600, he said.

Gold for April delivery touched a low of $548.50 an ounce on the New York Mercantile Exchange, a level not seen since Jan. 18. It recently recovered a bit to trade up 50 cents at $555.30.

On Tuesday, the contract lost almost $20 an ounce to record its biggest ever one-day decline. Prices climbed close to $580 last Thursday, a level not seen since 1981.

Traders said the steep fall suggested that the rush of buying that has propelled prices to repeated 25-year highs may have been exhausted, at least for now.

Action Economics said a sharp yen rally had added to the momentum as it squeezed out Japanese and other yen-funded margin accounts from long gold positions.

"The weakness in gold prices is reflective of a broader deleveraging of commodity long exposures," they said. "The sharp decline in gold has weakened the technical picture and should keep prices pressured over the near term."

In the longer-term however, fundamentals — rising global demand and generally constrained supply — still remain bullish, they said.

Many analysts are expecting gold to test the $600 an ounce resistance level in the near term.

"From a technical point of view, the current correction is positive for the longer-term bull run and should give the metal the legs to clear the current 25-year high … and push on towards $600," said James Moore, an analyst at TheBullionDesk.com in London.

Prices will likely see support around the $545-$535 level, he said.

Other metals traded mainly higher Wednesday. March silver was last trading up 2.5 cents at $9.435 an ounce.

A correction back to "the prior breakout point" of $9.25-$9.30 for silver will "lend the first level of support here with $9 the next downside target," said GoldSeek.com's Spina.

April Platinum was down $1.70 at $1,060 an ounce but sister metal palladium saw its March contract tacked on $1.80 at $291 an ounce after losing 7.5% in the previous session.

March copper added 0.7 cent to trade at $2.285 a pound.

On the supply side, copper inventories rose 15,799 short tons to 45,649 as of late Tuesday, according to the New York Mercantile Exchange.

Gold supplies fell 2,411 troy ounces to 7.32 million, while silver stocks were down 55,495 troy ounces at 125.5 million.