NY Precious Metals Review: Gold Dn As Funds Sell;USD Gains
NEW YORK (Feb 15)--The precious metals complex turned negative on Wednesday on the Comex division of the New York Mercantile Exchange as gold took a lashing due to further fund selling while the U.S. dollar made gains against the euro.
The most-active April gold contract settled $6.20 lower at $542.70 an ounce. During the session the contract dipped to a $539 low, just above Tuesday's five-week low of $537.80 an ounce.
Andrew Chaveriat of BNP Paribas said the weekly momentum of the gold market is on the verge of a bearish crossover off an overbought extreme.
"The picture is reminiscent of the December 2004 high, which was followed by a lengthy pullback. This time around, bearish momentum could fuel a deep and sharp drop in gold prices," Chaveriat said.
During Wednesday's session, traders and analysts said players were faced with a difficult gold market
"From Asia, to Europe to New York, the precious metals had a very nervous range-bound behavior before succumbing to sharp selling towards the end of the day," an analyst said.
Traders said the focus in New York remained on Federal Reserve Chairman Ben Bernanke's testimony to congress.
While some traders said Bernanke's speech had a "hawkish" tone, it was enough for the dollar to rise and weigh on precious metals.
Chaveriat said this week's decline in April gold below $548.50 confirmed a secondary top is in place at $572.30, the Feb. 10 high, joining the $579.50 peak from Feb. 2.
"Secondary tops often exhaust buying power leading to substantial medium-term and potentially longer-term declines," Chaveriat said.
Additionally, Chaveriat said the formation of this secondary top has been accompanied by a dramatic increase in short-term volatility.
"A sharp increase in volatility is often associated with a turning point," Chaveriat said.
Meanwhile, silver futures followed gold lower with the March contract settling down at $9.215 an ounce, off 10 cents on the day.
John Kosar of Asbury Research said silver prices are likely to continue their recent decline for at least the next several weeks.
Kosar said that according to the most recent Commitment of Traders report, commercials or institutional investors and large speculators are at similar opposite net position extremes now, suggesting that silver prices will continue to move lower.
The platinum group metals sector appeared to test positive ground earlier in the session but later succumbed to the downward pressure of the rest of the complex.
April platinum settled $12.40 lower at $1,006.50 an ounce. It dipped to a low of $1,001 an ounce during the day.