Gold price slips on profit-taking, correction potential building

Otmane El Rhazi from The Bullion Desk.

Gold price slipped as investors profit-take following Sunday’s Greek election results and ahead of the FOMC meeting scheduled to start later today.

Spot gold was last at $1,279.40 per ounce, just 30 cents lower than where it ended on Monday.

Gold price has been bid up by safe haven demand since the start of the year, rising more than 10 percent in less than a month to hit a recent high of $1,307.90 per ounce.

Risky economic climate – a slump in oil prices, quantitative easing by the European Central Bank (ECB) and the latest Greek elections – has helped to propel gold prices thus far this year.

However, with these risk events now over, traders are choosing to cash in on the profits before the bears push back.

“After all, the sharp rise in the price of gold of nine percent in US dollar terms and 18 percent in euro terms since the start of the year was largely attributable to the expectation of substantial ECB bond purchases and a change of government in Greece. Both have now come to pass, prompting many investors to follow the old adage of ‘buy the rumour, sell the fact’,” said a report by Commerzbank.

With long speculative positions building up to its highest since july 2014, gold has reached a certain correction potential.

“Gold downside pressure is growing on the back of lesser safe haven demand, weak euro, FOMC risks and the recent sharp increase in positioning,” said UBS analyst Joni Teves.

Investors are also playing it safe ahead of today’s FOMC meeting.

This will be the Federal Reserve’s first FOMC meeting this year; although there will be no update on economic projections or press conference by by Fed chair Janet Yellen, it will be interesting to watch for any mention with regards to the recent quantitative easing move by the European Central Bank(ECB).

“Gold is testing support after its strong run higher on increasing safe-haven demand and a falling oil price that has sparked deflationary fears; however, this move looks to be consolidation after becoming overbought rather than a reversal,” commented Fastmarkets’ analyst Tom Moore.

“So if the FOMC indicates that rates are unlikely to be raised in the short term, we would expect gold, which has lost upside momentum, to find gain renewed vigour from reduced dollar strength, possibly opening up a renewed challenge of resistance below $1,300.”

Others in the precious metals complex fell as well. Silver is now trading below $18, falling 10 cents this morning to last quoted at $17.83 per ounce.

Platinum is two dollars lower at $1,250 while palladium fell $4 to $774 per ounce.

The post Gold price slips on profit-taking, correction potential building appeared first on The Bullion Desk.