Gold price hits April 2010 low amid precious metals rout

Otmane El Rhazi from The Bullion Desk.

The gold price hit its lowest since April 2010 in early-morning London trading, slumping below crucial support levels on freefalling oil prices and dollar strength.

Spot gold was last at $1,147.40/1,148.20 per ounce, down $20 on Tuesday’s closing level. It hit a low of $1,143.60 overnight and, now that it is firmly below $1,155, the price is now susceptible to falling towards $1,100.

The slump in gold comes as oil continues to spiral into four year lows after Saudi Arabia cut prices to the US, while the continuing strength in the dollar – last at 1.2498 against the euro – is also providing significant downside pressure.

WTI is now firmly below the $80 per barrel level after starting the year at $98, while Brent is holding at around $82 per barrel, down from $110 at the beginning of 2014.

Attention now turns to the ECB – there is growing speculation it will introduce unconventional monetary measures to reinvigorate the bloc’s stuttering economy, after Japan took the QE baton from the US at the end of last week.

In EU Commission forecasts earlier this week, it sees overall eurozone growth for the year at 1.1 percent, down from 1.7 percent at the beginning of the year, with German growth at just 1.3 percent.

“Gold continues to fall on growing dollar strength – the European Commission’s weaker EU outlook raises speculation that the ECB now has no choice but to resort to a stimulus package to prevent the currency bloc sliding into deflation,” FastMarkets’ Tom Moore said.

Despite lower prices, physical demand remains poor, most probably while buyers hold off in anticipation of further falls in price.

“What is clear is that the Chinese gold consumer is well and truly on the sidelines for the moment,” ANZ Research said in a note. “We saw a pickup in physical demand in September, which continued through most of October. However, this seems to have dried up once more despite the continued decline in price.”

“The Shanghai Gold Exchange premium to London traded flat to negative in recent days, which to us is a clear negative price signal,” it added.

In data today, the Italian and Spanish services PMIs were robust, with the overall EU PMI at 52.3. Elsewhere, the Chinese HSBC services PMI was lower than the previous month at 52.9, with the US figure expected later today.

Also due are EU retail sales data, the ADP non-farm employment change data and the ISM non-manufacturing PMI. But Friday’s blockbuster non-farm payrolls report overshadows the rest.

In the other precious metals, silver at $15.31/15.36 per ounce was down 69 cents at its lowest since February 2010 and platinum was last $23 lower at $1,198/1,203 per ounce, a four-week low.

Palladium, which had been performing well in recent sessions on strong vehicle sales data out of the US, was last down $21 at $761/766 per ounce.

(Editing by Mark Shaw)

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