By Barbara Kollmeyer, MarketWatch
MADRID (MarketWatch) — Gold prices fell sharply on Tuesday, dropping below the psychologically important level of $1,700, with one analyst saying there was a move to short the market during Asian trading hours.
“There was someone looking to trigger stops on the way down, and they duly did. Gold dipped just below $1,700, and righted itself to find key support at $1,705,” said Ross Norman, chief executive officer of Sharps Pixley.
As the U.S. open neared, losses for gold were building.
February gold futures GCG3 -1.09% fell $18.30, or 1%, to $1,702.90 an ounce. Gold rose $8.40, or 0.5%, on Monday to settle at $1,721.10 an ounce, lifted by weakness in the U.S. dollar. Read: Gold settles higher after last week's loss
Norman said the move lower came during Tokyo lunch hours, and said he had heard it was a big fund, but wasn’t sure which one. He said that differed from a move last Wednesday, which also involved some market shorting that came during a period of maximum liquidity. Gold tumbled nearly $26 an ounce during that session. Read: Gold settles with a loss of nearly $26 an ounce
For now, Norman said gold needs to try and maintain that $1,705 support level. “If it breaches that level when the Americans come in this afternoon, you may see further downside at $1,672,” said Norman.
He noted that investors will often see profit-taking on gold this time of year — and the impact can be big as markets thin out, bearing in mind gold has rallied this year.
The February contract reflects a nearly 8% year-to-date gain for gold.
“But it’s also a time when a lot of people are taking on new positions because of the fiscal cliff, and on relative euro strength,” said Norman, who added that in thin markets, big swings will happen.
He added that gold hasn’t seen much of a bounce back from that selling that came out of Asia.
“The market does seem to lack conviction and confidence. These moves are testing the market and so far they seem to be right,” he said.
Analysts at Commerzbank said current gold price weakness isn’t sustainable because there are positive factors, such the euro debt crisis is calming down.
“Incidentally, the dip in the price of gold was not accompanied by weaker ETF demand; on the contrary, gold ETFs tracked by Bloomberg recorded inflows yesterday for the twelfth consecutive day of trading, so the lower prices are clearly being regarded as an attractive opportunity to buy,” the analysts wrote in a note.
U.S. stock futures were trading moderately higher, though the economic calendar remains empty until Wednesday, leaving investors wide open to ponder the state of U.S. debt negotiations. Read: Stock futures flat; No data leaves focus on cliff
Most other metals tracked gold futures lower, with silver for March delivery SIH3 -1.85% dropping 65 cents, or 2%, to $33.14 an ounce. Palladium for the same month PAH3 -1.24% fell $6.40, or 1%, to $683.05 an ounce, while January platinum PLF3 -1.14% slid $20, or 1.2%, to $1,594.80. March copper HGH3 +0.12% was flat at $3.64 per pound.
Barbara Kollmeyer is an editor for MarketWatch in Madrid. Follow her on Twitter @bkollmeyer.
