AFP: Gold meets resistance, may fall back to $1440
TOKYO (Commodity Online): Gold seems to be losing its charm as a safe haven investment and recent price movements suggest the market is struggling to rise above resistance levels.
The yellow metal appears to be suffering from a technical fatigue as such high prices attract little buying interest, analysts opine. Analysts also expect prices of gold to step back towards $1440 per ounce in the international market in the near future because of all the same reasons it used to derive strength from. However, the long term trend remains intact, added analysts.
1. Possible panic selling in stocks and rising US dollar to put pressure on gold
Even though the market recovered most of the losses from recession, the confidence is tapering quickly as economic situation is getting worse despite immense measures from the US government to jump start their economies.
US Dow Jones average recently fell from the highest since June of 2008. The market has also fallen at the quickest pace since May of 2010. Any panic selling in stock markets is sure to trickle down to other assets, including gold, raising the possibility of the yellow metal to fall. Another possible wave of selling across asset classes is sure not to spare commodities market, including gold, especially due to the popularity it has gained in the recent years.
The US dollar has also begun to rise against the European currency, weakening the safe haven demand for gold. Possibility of debt defaults in Greece and other countries are weighing on Euro, giving additional strength to the US dollar.
2. Rising Inflation and seasonal lull
Meanwhile, it’s inflation that is bothering the emerging economies. China and India have already taken several measures to contain inflation, but with little effect. This can persuade India and China, which are among the largest consumers of gold, to tighten monetary policy further that will result in reduced demand for the metal.
The inflation report of China showed that consumer price index rose more than expected by 5.5 percent, the quickest rise in three years. Inflationary pressures in India, the largest consumer of gold, is also significant, with it rising towards a higher than expected 9.06 percent in the month of May.
In addition, gold market is in a seasonal lull during the summer season, when prices usually dip. The summer lull has come at a time of impending fall in demand for the metal, which will raise the intensity of weakness in the metal.
