Gold continued to suffer near a four-year low on Tuesday as the safe-haven asset got no reprieve from the strength in the dollar and the US economy, while a lack of robust physical buying and weak technicals underscored expectations of further declines.
Bullion broke below a key technical level of around USD 1,180 an ounce on Friday after the Bank of Japan expanded its stimulus programme in a surprise move, lending strength to the dollar.
The break prompted a further sell-off that took gold all the way to USD 1,161.25 – the metal’s lowest since July 2010.
“While the metal closes below this level (USD 1,182), the technical risk grows for a liquidation move below USD 1,155,” ScotiaMocatta analysts said in a note.
“Only a close back above USD 1,200 would shift our view from bearish to neutral.”
Spot gold firmed up at USD 1,167.84 an ounce by 0340 GMT. The metal climbed to as high as USD 1,173.70 on Monday but failed to hold the gains on strong US data.
Silver recovered slightly from a four-year low of USD 15.72 hit on Monday though it continued to stay under pressure along with platinum and palladium.
The key pressure point for precious metals is the dollar, which hovered at four-year highs on Tuesday against a basket of major currencies.
Traders said long dollar trades were a no-brainer in the current environment where the Bank of Japan and European Central Bank are keeping the stimulus tap running, while the Federal Reserve has just turned off its massive bond-buying programme.
Data on Monday showed US manufacturing activity unexpectedly accelerated in October and automobile sales were strong, in a sign that the Fed could raise rates sooner than later.
Even with gold prices dropping to near 4-year lows, buyers across Asia have failed to show enthusiasm for the cheaper prices, preferring instead to wait on the sidelines.
When gold prices are in a slump, Chinese buyers in particular, eyeing a bargain, traditionally move in and stop the rot. But that doesn’t seem to be happening this time around.
In the biggest consumer of gold, local premiums – an indicator of demand – failed to pick up any big way.
Prices on the Shanghai Gold Exchange had fallen to a discount to the global price on Monday but recovered to a premium of USD 1-USD 2 an ounce on Tuesday.
But they are still far short of the USD 50-plus premiums seen last year.
Elsewhere, SPDR Gold Shares – the top gold exchange-traded fund, saw a very small inflow of 0.01 tonne on Monday – its first uptick since Oct. 16. Holdings are still firmly near six-year lows.