Is Gold a Victim of Its Own Success?
In the past, investors looked to Gold as a safe haven investment, especially in times of financial and economic crisis. Gold is particularly valued for its liquidity and universal acceptance as a store of value. In light of recent dire news concerning the U.S. subprime loan situation and weakness in the U.S. stock market, it would stand to reason, then, that investors would rush back into Gold until the dust settles. However, Gold prices have been falling in recent days, as large speculators are using the liquidity it offers as a means of raising funds to meet obligations for losses in other sectors of the market. In addition, many analysts look for European central banks to continue to sell Gold, with the possibility of hitting the 500-ton ceiling by September. The Central Bank Gold Agreement runs from September to September, and allows sales of no more than 500 tons per year. Traders estimate that just over 100 tons of Gold may still come on the market from central banks by the end of September, and this is acting as a cap on recent price rallies.
Looking at the daily chart for December Gold, we notice prices continuing to trade under both the 20- and 100-day moving averages. The 14-day RSI has turned lower, with a reading of 40.73. Yesterday’s highs at $680.90 look to be near-term resistance for December Gold, with a close above this level setting up a test of $691.50. Support is found at last week’s lows of $665.30. In early trade, December Gold is trading at $674.00, down $5.30.
