Gold Prices Continue to Follow a Long-Term Downtrend
Gold settles lower for the third day
Gold futures contracts for June delivery have been trading in a rectangular pattern for the last two months. Within this pattern, prices have been fluctuating between $1,180 and $1,220 per ounce. Slowing demand from Asia and the appreciating dollar are driving gold prices.
Gold price support
The current momentum could push gold prices to the key support of $1,150 per ounce. Prices tested this level in March 2015. The strong dollar and lower demand might push gold prices lower. In contrast, rising crude oil prices could increase inflation and support gold prices. Gold is used as a hedge against inflation. The important resistance is seen at $1,250 per ounce. Prices tested this mark in February 2015.
The rectangular trading range pattern suggests that prices could fluctuate between $1,160 and $1,240 per ounce in the short term. Market surveys suggest that the average gold production cost ranges around $1,000–$1,200 per ounce levels. This means the buying activity could increase if gold prices fall below $1,150 per ounce. This is an important level for gold traders, jewelers, and distributors.
The fall in gold prices is negative for ETFs like the iShares Gold Trust (IAU). Falling gold prices also negatively affect gold producers like Goldcorp (GG), AngloGold Ashanti (AU), and Yamana Gold (AUY). These stocks account for 17.58% of the Market Vectors Gold Miners ETF (GDX).
Browse this series on Market Realist: