Spot gold fell in intraday trading on Tuesday, losing as much as $1,830 to its lowest level in more than four months.
Gold prices fell more than 2 per cent to their lowest level in four months yesterday as better than expected US business activity data and optimistic expectations about coVID-19 vaccine trials boosted hopes for a faster economic recovery.
On the data front, market research firm IHS Markit released data on Monday showing the preliminary READING of the U.S. Markit manufacturing PMI for November was 56.7, higher than the expected reading of 53 and the previous reading of 53.4, the highest since September 2014. In the United States, the preliminary Markit services PMI for November came in at 57.7, higher than the forecast of 55.3 and the previous reading of 56.9. It was the highest reading since March 2015 and the fifth consecutive month of expansion.
Chris Williamson, chief economist at IHS Markit, said the November PMI survey provided the first post-election snapshot of the US economy and produced very encouraging data, but stronger economic growth did require more support.
“Gold broke below the key $1,850 level after strong U.S. purchasing managers’ indexes dampened demand for economic stimulus. No one expected the services and manufacturing Numbers to be so strong, “said Edward Moya, senior market analyst at OANDA.
Meanwhile, news of progress in developing coVID-19 vaccines also boosted risk sentiment. Earlier on Monday, British drug company Astrazeneca announced that its coVID-19 vaccine is likely to be around 90 percent effective and have no serious side effects. This is the latest drug company to report positive midterm trial data.
Moncef Slaoui, chief scientific adviser to the US government’s Action On Covid-19, said vaccination of groups such as health workers should begin within a day or two of the coVID-19 vaccine’s approval next month.
Buoyed by a series of positive news, risk sentiment continued to rally and spot gold took a beating, with one strategist saying it was important to hold on to a key support as gold faced a sharp fall.
Chief market strategist Chris Vermeulen said gold’s short-term momentum was tilted to the downside, with support at $1,810 an ounce likely to be tested before the next “big rally” begins.
However, if gold continues to fall below $1,810, it could fall all the way to $1,600.
“If gold reaches $1,810, that would be a very important turning point,” Vermeulen said. Ideally, gold would hit this level because it usually sees a very sharp reversal when prices reach a measurable target. It will be very volatile.”
Vermeulen cited vaccine news as the main reason for the pressure on the gold market in the past few weeks.
“I think the concern is enough, when ordinary investors and traders came home, they will see the news said, ‘oh my god, gold fell in, I have to sell positions’, so I think, tomorrow the market could jump empty, or at least continue day to sell, because the public exit out of sheer fear, hope will fall at around $1810 a bottom.”
In the long term, gold is on track to break another record high, hitting its target of $2,400, Vermeulen said.
“I think gold has a lot of upside potential. Obviously, gold needs to turn around to get there, but $1,800 and $1,810 are really critical. “If it breaks below that level and stays below that level week after week, then gold may have peaked here and it could go even lower, back to the $1,500 or $1,600 mark.”