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Precious metals drift, but losses modest so far

Last updated 7/20/2012 10:40 AM ET (GMT -5) 0 Comments - Add your comment

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David Morrison

Market Strategist, GFT

Follow @DMorrison_GFT

 **I will be away for the next three weeks, returning on Monday 13th August. But my colleague Fawad Razaqzada will provide a daily commentary on gold and silver in my absence. Please sign up to Fawad's emails by going to the "Markets News Alerts" box on the right hand side of the FX360 homepage. Thanks for following me and see you later in August**

Gold and silver have pulled back today, although at the time of writing, losses are modest. Considering the sharp sell-off in the euro (and corresponding rally in the US dollar) it is surprising that both metals haven’t fallen further. Today, the euro hit its lowest level since June 2010 and is currently testing resistance around 1.2150 against the dollar. This level marks the two shoulders of an inverse “head and shoulders” pattern that was completed back in the summer of 2010. If the euro fails to rally off this level convincingly, then it is in danger of retesting its low from that time – below 1.19. A weaker euro will put downside pressure on gold and silver. There is plenty of evidence that the central banks of developing countries remain buyers of physical gold while the central banks of developed countries are no longer sellers. However, there are concerns that retail demand in the world’s two largest gold importing countries – China and India – is weakening. Investors are worried that the economic slowdown in China will put the brakes on purchases of gold bullion as an investment, and also negatively affect jewellery sales. Demand from India has also dropped off this year due to rupee weakness which raises the price of dollar-denominated gold.  The imposition of import taxes also hasn’t helped. In addition, there are concerns that a lack of rain will result in poor harvests. This will result in lower incomes for farmers who are typically large buyers of gold.  For now, the two precious metals continue to move on the whim of traders. Gold has been unable to rally back up to the $1,625 resistance area – a level it was probing earlier this month. Meanwhile, silver continues to hang around $27.

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About The Author

David Morrison has worked in financial markets for over 25 years. He joined GFT in February 2009 to deliver commentary and research for derivatives products. Before then David had been instrumental in setting up two spread betting companies, managed trading desks, and implemented and ran successful risk-management strategies.

He has appeared on Bloomberg, Reuters, and Sky TV, and is widely quoted by financial newswires. He has written numerous articles covering economics and trading strategies using fundamental and technical analysis.