Gold prices dipped for a third session on Monday, easing in line with stock markets and the euro, as uncertainty over the outlook for US budget talks and a weak chart picture kept potential buyers on the sidelines.
Prices last week broke below their 100-day moving average, which had been a strong support level at $1,703 an ounce. Gold
is now trading below a number of key moving averages, suggesting the trend in the metal is weak.
Spot gold was down 0.22 percent to $1,691.44 an ounce by 15:31 SA time after falling nearly half a percent in the previous week. US gold was down 0.27 percent to $1,691.20.
The metal briefly rose to a two-week high above $1,720 an ounce last week after the US Federal Reserve pledged to buy $45 billion a month in longer-term Treasuries, a potentially inflationary move that was expected to support gold.
It swiftly retraced those gains, however, in line with other financial markets as investors prepared for year-end.
“This (move in gold) is primarily technical, a continuing ease-back after the FOMC announcement last week,” Tom Kendall, head of precious metals research at Credit Suisse, said.
“Technically the chart is looking more bearish. The path of least resistance is now to the downside.” Prices were drifting towards the low end of recent ranges towards year-end, he said.
On the wider financial markets, European shares and the euro retreated as investors focused on the fast approaching year-end deadline to avoid the imposition of steep tax hikes and spending cuts in the United States, known as the “fiscal cliff”.
A new proposal for tax hikes on incomes over $1 million a year from US Republican House Speaker John Boehner on Sunday was seen as a step forward, but it still remained some way from the position of President Barack Obama.
Credit Suisse's Kendall said gold was getting little support from speculation over the cliff at present.
“If the markets were very concerned about the lack of agreement to date or the potential impact of the fiscal cliff in the first quarter of 2013, you would expect to see gold higher than it is, especially considering the relative weakness of the dollar against the euro,” he said.
Gold demand in India, currently neck and neck with China as the world's biggest buyer of the metal, was soft as buyers awaited a key rate decision from the Reserve Bank of India (RBI) for its impact on the rupee.
“(The) market is very much in a range like the rupee, so the physical market is dull. They are all waiting for the RBI meeting tomorrow,” one dealer with a private bullion importing bank in Mumbai said.
Indian gold futures are likely to fall over the fortnight, extending losses to their lowest since early November, as investors resort to year-end profit-taking, shaving off part of the double digit gains made in 2012 so far.
Hedge funds and money managers raised their bullish bets on US gold futures and options to 129,865 contracts in the week ended Dec. 11, up from a more than three-month low of 126,073 lots in the previous week.
But they cut net length in silver to 34,862 lots, the lowest since late November.
“Gold's post-FOMC price action has been muddied by other factors, such as (profit/loss) considerations, as year-end nears and uncertainty regarding the US fiscal cliff lingers,” UBS said in a note.
“Nevertheless, it cannot be ignored that, at least in the near term, investor confidence has taken a hit.”
“Gold net longs were little changed,” it said. “The subdued spec activity is a testament to the market's growing lack of appetite to take any large positions closer to year-end.”
Among other metals, spot silver was up 0.22 percent at $32.22 after earlier falling to a one-month low of $32.08, just below its 100-day moving average at $32.14.
Spot palladium lost 0.50 percent to $696.50, after rising for seven weeks straight, its longest winning streak in more than two years. Platinum was down 0.78 percent at $1,601.49 per ounce. - Reuters