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Last updated: December 4, 2012 10:13 pm
Gold prices fell to less than $1,700 a troy ounce for the first time in four weeks as investors lost patience with the precious metal’s lacklustre performance.
Prices slid 1.4 per cent in the spot market to touch a low of $1,690.64, the lowest since early November. The fall means that gold has now lost 3.6 per cent since touching $1,750 less than a fortnight ago.
The drop came despite a weaker dollar, which usually supports gold prices. In euro terms gold has fallen 5.5 per cent in the past month and on Tuesday fell to less than €1,300 an ounce, touching its lowest since July. Traders said that investors remained broadly positive about the medium-term outlook for gold, but that they had become cautious about its short-term direction after recent sluggish performance.
“We tried several times to break through $1,735,” said Afshin Nabavi, head of trading and physical sales at MKS Finance, a gold refiner. “We have been hearing that hedge funds are selling just because of lack of follow-through.”
However, analysts and traders said they did not believe the fall would be long-lived, arguing that demand to buy gold as a hedge against currency devaluation remained strong among investors and asset managers as well as reserve managers at many central banks.
“Clients aren’t necessarily negative on the metal; rather participants are very frustrated and struggle to have a clear view,” said Edel Tully, precious metals strategist at UBS.
Mr Nabavi said he believed prices could fall to $1,675, but at that point “I think demand will come through”.
Although some traders remain wary about gold’s performance towards the end of the year after last December when the metal tumbled more than 10 per cent, there are several potential positive catalysts for the market over the next month.
Most importantly, some investors expect the US Federal Reserve to announce additional asset purchases at its meeting next Wednesday as a replacement for “operation twist”. Previous rounds of asset purchases – known as quantitative easing – have supported gold and other commodity prices.
Second, the annual rebalancing of the weightings of different commodities held by index investors was this year likely to result in gold purchases, analysts said.
Finally, short-term investor sentiment towards gold is negative, meaning that any reversal could be accelerated by short-covering.
“I’m pretty friendly on gold into the end of the year at least,” said one hedge fund investor. “December is usually a pretty decent month for gold and silver.”
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