GOLD - More Downside Left
A ‘death cross’ is haunting gold 06-02-14 MarketWatch
Talk of further declines for gold intensified Monday as analysts pointed out that moving price averages hit a so-called “death cross” last week.
The 50-day moving average for gold GCQ4 +0.14% has now crossed below the slower-moving 200-day average, creating a “death cross,” said Fawad Razaqzada, technical analyst at Forex.com, in a note Monday.
“This bearish technical development last occurred in mid-February of last year when the metal was trading at around $1,600,” he said. “Although it did not immediately lead to a selloff then, as gold had already fallen sharply in advance to the crossover, prices started to move lower once again a couple of months down the line.”
The market saw the 50-day moving average cross the 200-day moving average on Friday, according to Ole Hansen, commodities strategist at Saxo Bank.
“For the death cross to have any significance, the slope of the two moving averages both have to point lower, and this was the case on Friday’s cross,” he said. “From a purely technical perspective, this could indicate that deeper losses lie ahead.” August gold futures traded at $1,245.20 an ounce on Comex Monday afternoon, down about 80 cents for the session.
Gold prices may have even reached a price ceiling already. Read about Monday’s Comex gold trading.
In a note dated Monday, analysts at Citi Research pointed out that while gold rallied in February, supported by the restocking needs of the jewelers after Christmas and Chinese New Year, that caused gold to approach $1,400 an ounce.
Exchange-traded fund holders saw an “opportunity to offload into the jewelry demand,” they said, and “that set a ‘ceiling’ of $1,400 an ounce, the apparent level at which ETF holders are willing to return as sellers.”
“The threat is that those ETF holders may be lowering their ceiling constantly such that any jewelry-driven rise above $1350/oz may now trigger the same ETF sales,” they said. “The year is therefore turning out to be a tussle between jewelry-trade buying and ETF selling.”
Gold holdings in the world’s largest gold-backed ETF, the SPDR Gold Trust GLD -0.06% , stood at 785.28 metric tons as of May 30, up from 776.89 metric tons on May 23, but they ended the month of February at 803.7.