Biggest fall in two weeks reflects trader 'profit-taking' and latest rate rise speculation
The gold price plunged abruptly yesterday, as the end of its recent strong rally culminated in the steepest fall in more than two weeks. Having peaked last Thursday at $1,187 – in the process breaking through its 200-day moving average price and going above the high summer watermark – gold drifted a little lower on Friday. On Monday it slumped and at one point fell as low as $1,168, before recovering slightly. It is currently sitting at around $1,173.
"Technically, gold rallies have consistently failed around the 200-day moving average in 2015," Michael Armbruster, principal and co-founder of Altavest Worldwide Trading, told Market Watch. After its recent slide, gold is back below this technical threshold: the 200-day moving average currently stands near $1,176 an ounce.
Gold bugs had hoped that the commodity would push on to $1,200 an ounce or above after breaking free of its shackles last week, but with US interest rates still undecided there were fears it would be dragged back down.
Armbruster says he will now "look for gold to pull back to the $1,150 level before deciding its next move."
The Wall Street Journal notes that the latest sharp fall is due in part to renewed speculation that a rates rise might happen this year, bucking an emerging consensus that consistently poor data is making this less likely. Strong American housing data went against the grain yesterday, in the process buoying the US dollar.
A US rates rise would hurt non-yielding commodities such as gold and boost the dollar against which the metal is often used as a hedge. Once a rate rise happens, some reckon gold will only see a short-term decline before bouncing back, as physical demand remains high and stockpile reserves are low.
