Gold skids on oil, drops below $1,170/oz

Gold prices tumbled to a two-week low on Friday. With OPEC members refusing to reduce output, Brent crude futures plunged to $69.8 a barrel and gold, which is seen as an inflation hedge, lost sheen. Gold slipped to $1,167.38/ounce, down 2.8 per cent for the week. Silver prices were down even more sharply. The white metal dropped to $15.45/ounce, losing 6 per cent. Platinum closed the week at $1,200/ounce, down 2 per cent.

SPDR Gold Trust, the largest gold-backed exchange traded fund, continued to see holdings drop. On Friday, the fund reported holdings at 717.63 tonnes, down from 720.9 tonnes in the previous week. The US GDP data that was released on Tuesday also worried gold investors. US third quarter GDP was revised upwards to 3.9 per cent from 3.5 per cent reported earlier. The dollar index stayed flat at around 88.3, though the greenback made strong gains against Canadian dollar. The US dollar index closed at 88.35.

Cues to watch

The outcome of the referendum (November 30) in Switzerland where citizens vote on a move to increase the bank’s gold reserve to 20 per cent (from 8 per cent now) of its foreign exchange holdings — will be critical for gold prices this week. If there is a ‘yes’ vote, which is less likely according to experts, the bank would have to buy about 1,500 tonnes of gold from the market over the next five years. Polls conducted so far indicate that majority of the public are against the move. However, if there is a surprise ‘yes’, the market may see a knee-jerk reaction and gold prices can move up swiftly. The other triggers for gold prices this week will be jobless claims data on Thursday and employment situation data on Friday, which will highlight the strength or weakness in the US economic recovery. Do keep an eye on crude prices too. With OPEC not willing to cut output, analysts expect oil prices to drop even further, even to about $60-65/barrel.

If that happens, and dollar strengthens further, it will be negative for gold.

On the chart

Gold prices have become very volatile, frequently declining below the $1,200-mark. Traders need to be very cautious with their long positions. If prices break below the low of $1,132/ounce, $1,000 may not be a long way. But, that said, if the metal stabilises above the $1,200 mark on any positive developments, and cuts above $1,300, more buying may be seen. This week, watch out for the support at $1,150. The next support will be at $1,130. On the higher side, the first resistance is at $1,200.

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