The price of gold has fallen below recent prices this past week, dropping below the critical $1300 per ounce mark, and although the market is oversold, some analysts believe there is still room for further declines.
The market has been unable to resist expectations related to rising interest rates, which have pushed the yield on 10-year U.S. Treasury bonds above 3%—the highest since 2011.
June gold futures have traded at $1294.20 per ounce, with a decline of nearly 2% in price.According to Phillip Streible, senior market analyst at RJO Futures, this could mean further declining prices.
Saxo Bank expert Ole Hansen confirms that the price of gold is currently suffering from changing interest rate expectations. He states that the rise in oil prices to their highest in years—$70 per barrel—heightens inflation fears in the market, and the Fed may be forced to raise rates to curb inflation. He also notes that as the 'floodgates' open, there may be even sharper declines in the price of gold.
In addition to forecasts of rising inflation, the U.S. dollar received a boost this past Tuesday from stable retail sales figures for April and stronger-than-expected industrial production numbers.
Hansen primarily notes that he is watching the $1286 per ounce level:"If this level breaks, investors will start to wonder if this is something more than just a correction."
DTN senior analyst Darin Newsom says he is watching the same level, as it represents an important trend line from the lows of 2015.
Although the technical analysis of gold is currently 'broken', there are still hopes for a price reversal.Hansen notes that if the capital markets continue to decline, investors may turn to gold as an alternative safe haven. And that if long-term inflationary pressures increase, gold will again appear attractive, as real interest rates remain low.
According to Streiblen, gold now needs time to recover from this drop, and he does not see anything in the immediate future that would drive prices upward.
Source and images: Kitco News, Gold Prices Have Room to Fall Further After 2% Drop
