Gold price fight back cut short by US data

On Wednesday gold failed to stage a comeback after yesterday’s crash through the $1,300 an ounce level to its lowest since June.

In early trade December futures trading on the Comex market in New York exchanged hands at $1,269.40 an ounce, flat compared to yesterday’s close.

After an early climb in another day of heavy volume, a measure of economic activity in the US which jumped to an 11-month high cut short the mini-rally. The ISM services index showed expansionary economic conditions, putting a rate hike by the US Federal Reserve in December firmly back on the table.

Interest rates, government bond yields and the gold price have a strong negative correlation and a stronger dollar has an even closer inverse relationship to commodity prices in general.

Rallies will now be seen as a chance to sell, and today’s early rebound could be just that opportunity

The US dollar index on Wednesday gained for a third day trading at 96 against the currencies of the country’s major trading partners. Today’s level compares to a record low of 71.6 in April of 2008 and a record high of 164.72 in February 1985 when the price of gold bottomed at $284.25 an ounce.

Richard Perry, analyst at Hantec Markets, told MarketWatch ahead of the ISM data that “gold could struggle to recover all of its Tuesday losses”:

“Rallies will now be seen as a chance to sell, and today’s early rebound could be just that opportunity. Classically, you would be looking at a pullback to the neckline at $1,302 as the selling opportunity, but the bears may not wait that long,” he said in a note.

Rich Ross, head of technical analysis at Evercore ISI, is quoted by CNBC as saying gold could fall another $70 or more:

“I’d be a seller here of gold and miners,” Ross said Tuesday on CNBC’s “Power Lunch,” pointing to a five-year chart of gold with its 100-week moving average.

The chart shows that the weekly moving average, which takes the average of gold’s recent prices, now hovers around $1,204 — significantly below the $1,275 level at which gold finds itself on Wednesday morning

“The magnetic quality of that 100-week proves true here,” Ross said, forecasting that gold falls closer to $1,200.

Gold touched a two-year high in July around $1,380 an ounce and despite the pullback year to date the metal is still managing gains of 20% or $220 an ounce, one of its best annual performances since 1980.

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