MW: Gold falls on profit taking, weak physical demand
Barclays: There has been no long-term shift in bearish sentiment
By William L. Watts and Barbara Kollmeyer, MarketWatch
NEW YORK (MarketWatch) — Gold tumbled Monday as solid gains for stocks and lackluster physical demand prompted investors to book profits on recent gains.
August gold futures GCQ4 -2.26% dropped $18.40, or 1.4%, to $1,319 an ounce. September silver SIU4 -2.24% fell more than 31 cents, or 1.4%, to $21.15 an ounce.
“Overall, we believe that physical demand has remained short of expectations, the latest price increase having been driven largely by speculation,” wrote Eugen Weinberg, commodity strategist at Commerzbank in Frankfurt, in a note.
Pointing to India, Weinberg said indications a 10% import duty on gold will remain in place “is also likely to have a dampening effect on future gold demand expectations. In conjunction with a rather below-average monsoon season, this points to below-average gold demand from India.”
Gold prices ended last week on a down note, but still managed to register their sixth straight weekly gain. For the week, gold was up 1.3% as uncertainty rattled equities.
The dollar index DXY +0.01% , which measures the greenback against a basket of six major currencies, popped just as gold fell back. A stronger dollar can be a negative for commodities priced in the currency as it makes those commodities more expensive for users of other currencies.
On the economic front, nothing major is due Monday, but Federal Reserve Chairwoman Janet Yellen’s testimony will be pored over on Tuesday. Also of note, bank and tech earnings will color equity trading throughout the week.
Edward Meir of INTL FCStone said he believes last week’s strong showing bodes well for this week.
“We were concerned that we were not seeing any follow-through buying to accompany the $40 an ounce spurt higher we saw set in on June 19,” he said. “We therefore expect to see a little more upside action this week, with festering geopolitical hot spots providing support.”
But analysts at Barclays were much more cautious on gold. In a note to investors dated July 14, analyst Christopher Louney said recent gains across the metals complex look toppy.
“We caution against interpreting recent strength in investor flows as a long-term shift in sentiment, as gold still represents a healthy selling opportunity, in our view,” said Louney. For 2014, Barclays expects gold to average $1,260 an ounce, and drop to $1,200 by the third quarter.
Elsewhere in metals trading, October platinum PLV4 -0.34% gave up $11.50, or 0.8%, to $1,502.30 an ounce, while September palladium PAU4 +0.37% fell $3.90, or 0.4%, to $871.40 an ounce. High-grade copper for September delivery HGU4 -0.51% was off less than 1 cent at $3.261 a pound.
