The prospects for the yellow metal don’t look good in the short term. A weak dollar, however, could push it higher in the long run.
Gold fell, extending its biggest drop in three weeks, on speculation that investors will take advantage of a pause in the dollar’s decline to cash in on the precious metal’s recent rally to records.
Bullion pared its third weekly advance as the Dollar Index, a six-currency gauge of the greenback’s value, snapped a four- day decline to rebound 0.2 per cent, spurring sales of precious metals. Gold may fall next week as record prices erode jewelry demand and prompt some investors to sell, a survey showed.
“Gold needs to take break before rising to new highs,” said Steve Chun, a trader with Hyundai Futures Cop. in Seoul. “Some investors are taking a cue from a temporary rise in the dollar to take profits on gold.”
Immediate-delivery gold fell 0.2 per cent to $1,048.01 an ounce. Prices declined 1.2 per cent yesterday as record prices and a recovery by the dollar prompted selling. December gold futures shed 0.2 per cent to $1,048.80 an ounce on the New York Mercantile Exchange’s Comex division. Nine of 16 traders, investors and analysts surveyed by Bloomberg News said bullion would fall. Five forecast higher prices and two were neutral.
Bearish divergence
Bullion may decline to $1,025 an ounce then slide further toward the psychologically important $1,000 mark, Commerzbank AG said yesterday, citing recent trading patterns.
“We can see that the market is coming off and the daily relative strength index has registered a bearish divergence,” Karen Jones said. “We remain wary of failure” of a weekly close above $1,057 an ounce.
Gold reached an all-time high of $1,070.80 an ounce on October 14 and is still on course for its ninth annual gain as investors bought physical assets to hedge against the weaker dollar and the threat of inflation. Commodity-based exchange- traded funds have almost doubled assets under management since the end of 2008, Barclays Global Investors reported.
Commodity assets in exchange-traded funds jumped to $19.7 billion in the third quarter from $9.9 billion at start of the year, Deborah Fuhr, head of ETF research at Barclays, said. Assets climbed 20 per cent from the second quarter.
“The dollar’s downtrend remains intact and so does gold’s uptrend,” said Hwang Il Doo, a senior trader with KEB Futures Co. in Seoul. “A pause in the dollar’s loss may provide an excuse for investors to take profits which won’t alter the bullish outlook for precious metals.” Gold will average $1,140 an ounce next year, up 8 percent from a previous estimate, as “strong investor inflows” boost prices, Standard Chartered Plc analysts including Dan Smith said. The bank raised its gold forecast for this quarter by 4.8 percent to $1,100 an ounce.
