Gold price vulnerable as short-covering rally falters

Otmane El Rhazi from The Bullion Desk.

The gold price was vulnerable to further declines following the previous day’s rally, as Tuesday morning sessions saw the metal pare back from the psychologically important $1,200 per ounce level.

Spot gold was last at $1,187.50/1,188.50 per ounce having peaked yesterday to $1,204.50 following sluggish US data, however, this soon reversed as the euro pared back from the dollar.

“There were some fireworks seen yesterday in gold around the New York open, and despite the moves and the volumes seen going through the market around this time, in the end the moves were only mere fireworks and nothing of substance, MKS Capital said.

“The speed though with which we subsequently moved lower however is of concern, and if shorts have been lightened as a result of last night’s washout, it may pave the way for a break lower in the coming sessions,” they added.

“The precious metals look vulnerable after yesterday’s failed upside spikes – that said it is interesting that when the buying did turn up, prices moved fast, although lack of follow-through buying suggests the energy for yesterday’s run higher came mainly from short-covering.  On balance, we would not be surprised to see prices work lower,” FastMarkets analyst William Adams said.

In currencies, the euro was in consolidation mode and was last at 1.0958 against the dollar.

Elsewhere, Greeks and officials from the ECB and the IMF remain locked in negotiations, with many of the opinion that the country will make the first payment on June 5.

“If anything, the Greek position may be turning a bit more hardline, as the country’s lead negotiator appointed to talk to the IMF was replaced by an official more palatable to the Syriza party. Eurozone officials have set a deadline of Friday to conclude the talks with the Greeks and market watchers suspect that while the Greeks are likely to make a June 5 payment, they would be hard-pressed to make further payments in June without a new agreement in place,” INTL FCStone analyst Edward Meir said.

It is another data-heavy day today. Spain and Germany are set to release their unemployment change, while the eurozone has CPI flash estimates, core CPI flash estimate and PPI. From the US there will be factory orders and total vehicle sales.

Silver at $16.71/16.76 was marginally lower than the previous $16.72. Platinum at $1,102/1,107 was up $1, while palladium was unchanged at $770/775. 

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