Gold futures recorded their eighth straight losing session with the price briefly dipping below the important $1,100 resistance level.
The reasons for the weakness in the gold price are many and varied to the degree that gold, in company with many other commodities, can be said to be facing a perfect storm on all fronts.
Trading on the Comex had August gold (GCQ5, +0.39%) fall by $25.10 to settle at $1,106.80 after briefly trading a $1,080 after breaching the psychologically important $1,100 resistance level.
Analysts attributed the gold selloff to the release of Chinese data, indicating gold reserves at 50% of what the market expected, together with a strong dollar (USD) and bearish influences. The decrease in investor sentiment for gold as a safe haven is another factor in the opinions formed by the analysts.
Meanwhile, there are other factors which have put some downward pressure on the precious yellow metal.
A period of greater geopolitical stability internationally has arrived after the successful conclusion of the negotiations between Iran and the P5+ 1 nations on Iran’s nuclear ambitions. Added to this is the normalization of relations between the U.S. and Cuba with the announcement of a full restoration of diplomatic relations between the two.
Also, the lowering of concerns of a financial crisis after the Greek capitulation to the EU and IMF terms for the continuance of emergency aid as well as the resumption of long term funding to end the immediate financial crisis has negatively impacted the gold price.
The determination of the Federal Reserve to increase the interest rate, possibly as early as September, albeit in small increments, has had its influence on the dollar strength together with regular data indicating that the U.S. economy is on an upward curve. According to Kitco, the dollar received an additional boost on Monday when St. Louis Fed President James Bullard told the Fox Business network that the central bank is likely to raise rates in September, with inflation climbing towards its target and unemployment poised to dip below 5%.
Julian Phillips, founder and contributor to GoldForecaster.com commented to MarketWatch that, “At a time of the year when Indian markets are in their summer ‘doldrums ’ with the developed world factoring in a change of trend in interest rates to the upside combined with a strong dollar, speculators saw a chance to launch a bear raid.”.
Also, Simona Gambarini said in a note that sentiment towards gold is now excessively negative.
Despite all the current negatives, Capital Economics still expects the gold price to recover to $1,200 by year end. The forecast for a price of $1,400 for 2016 also remains unchanged.
MT4 Chart: Gold