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Gold Tumbles Most in 3 Months; $1200 Support in Trouble

Published 11/09/2018, 02:06 PM
Updated 11/09/2018, 02:30 PM
Gold tumbled in afternoon trading.

Gold tumbled in afternoon trading.

Investing.com - Oil isn't the only commodity getting hammered these days. Gold's key support of $1,200 could also be under attack, with investors seeing little upside for the yellow metal amid the string of U.S. rate hikes forecast.

U.S. producer price index (PPI) data for October, released on Friday, showed an increase of 0.6% vs expectations for 0.2%.

That was an endorsement of sorts for the Federal Reserve to raise rates again in December, the fourth time it would be doing so this year. The U.S. central bank is determined to stay ahead of the inflationary curve and has signaled more rate increases in 2019, after the robust growth data seen lately for the world's top economy.

The PPI data instantly boosted the dollar, a contrarian bet to gold, weighing further on bullion's sentiment. The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, shot up up 0.22%, gaining nearly 1% in all over the two past sessions and heading for a fourth-straight week of gains.

"Deterioration of investor sentiment," Bank of America Merrill Lynch (NYSE:BAC) said of gold in a global metals outlook published on Friday, adding that "high prices" were deterring physical demand for the yellow metal, increasing its scrap supply.

Gold for December delivery settled down $16.50, or 1.3%, at $1,208.60 a troy ounce on the COMEX division of the New York Mercantile Exchange. It was the sharpest one-day loss in gold futures since Aug. 15. The session bottom was $1,207.30, the lowest in four weeks.

That low called into question the $1,200 support for gold, which has been a key perch since September for bullion fans. Just a day ago, some analysts had expected bullion to hover indefinitely in the $1,220-$1,240 range as a hedge toward political uncertainties in the U.S. after the split vote in the Nov. 6 midterm elections.

Walter Pehowich at Dillon Gage Metals in Addison, Texas, reported that ETFs in gold were taking it on the chin Friday morning after the PPI report, contributing to the slide in gold futures.

"The question now is how much damage has this report done to the gold market?" Pehowich wrote in a note. "Technical levels of support now are at $1,208 in spot. I believe it is imperative we hold this level in spot, if not, we could test the $1,200 dollar level in short order."

George Gero at RBC Wealth Management in New York said the selloff in oil, where benchmark WTI futures plumbed below the $60 per barrel support on Friday, was an added negative to gold.

Yet he was optimistic that a rebound was on the cards.

"This is becoming a crowded trade," Gero said, referring to the building short positions in Friday's trade. "I would not be surprised to see surprise headlines and market reactions all causing a rally in next weeks."

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