The selloff in paper gold futures resumed today as the gold price hit a 2-week low at $1428 an ounce. Gold currently is suffering its biggest one-day drop since the huge two-day rout that occurred in mid-April that was triggered by massive short selling. Traders said a number of sell stops were triggered today when gold breached the $1440 an ounce support level.
Traders pointed to a rising U.S. stock market and U.S. dollar as reasons behind gold’s renewed move lower. VTB Capital analyst Andrey Kryuchenkov told Reuters, “The U.S. dollar index is at late April highs, back above 83. That is one of the few things driving it [gold prices].” The dollar hit a 4-1/2 year high against the yen on Friday as the Bank of Japan continues on with its massive money printing.
Multi-year highs on the stock market are also contributing factor to the continued weakness in the gold price. Rising optimism about the recovery in the U.S. economy has boosted stocks’ appeal. In addition, talk about economic strength has started talk that the Federal Reserve will be able to trim back its QE (quantitative easing) program. QE has been a major support for gold in the past few years.
Credit Agricole analyst Robin Bhar said to Reuters, “The Fed . . . may step down QE depending on how the economy performs. So far, the data seems to be improving, which suggests they’re likely to take their foot off the pedal. That would argue for weaker gold.” The only question may be whether the Fed dares to take their foot the pedal because every time it says may do so, the stock market immediately sells off.
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