Gold drops to lowest since May

By Frank Tang

NEW YORK (BestGrowthStock) – Gold dropped 1 percent to hit a near two-month low on Monday as prices broke below a major upward trend, but the metal could rebound on near-term technical support, analysts said.

Weak U.S. housing sentiment and competition from other asset classes such as government bonds, equities and industrial commodities pressured the metal, which is used as an inflation hedge.

COMEX August gold futures have broken below a major up-trend line dated back from a February low after suffering a price breakdown on Friday, said Rick Bensignor, chief market strategist at investment banking group Execution Noble.

(Graphic: http://link.reuters.com/wyv38m)

However, the bullish pattern remained intact based on continuous one-month futures and spot gold despite August’s weakness, he said.

“Certainly, those looking to buy a pullback intending for significantly higher prices in the future are close to the major support line and a natural buying point,” Bensignor said.

Spot gold was at $1,181.80 an ounce at 1:30 p.m. EDT (1730 GMT), against $1,193.10 late in New York on Friday. U.S. gold futures for August delivery settled down $6.30 an ounce at $1,181.90.

Gold’s 1.5 percent slip last week was due to a combination of weak U.S. inflation data, outflow from the world’s largest gold exchange-traded fund and competition from government bonds.

Analysts said some short-term investors were spooked by the metal’s failure to hold above $1,200 an ounce.

“Liquidation of long positions is weighing on the gold price today,” said BNP Paribas analyst Anne-Laure Tremblay. “The liquidation is taking gold closer to closely watched technical levels, and this has potentially initiated further selling.”

“Gold’s lack of momentum has turned investors away from the metal — for now,” she added. “This may well continue for a while unless the (bank) stress tests results prove worrisome.”

Wall Street was largely mixed despite its Friday sharp losses. Oil was also flat after spiking as much as 2 percent in early sessions. (.N: ) (O/R: )

GOLD IGNORES IRELAND CREDIT CUT

A sovereign credit downgrade of Ireland by Moody’s failed to boost safe-haven demand for gold.

“Some of the risk premium that has gone into gold, primarily from the banking worries we have had, has been all but silenced for now, so that is removing a bit of the support we have had previously,” said Saxo Bank analyst Ole Hansen.

“Liquidity is pretty poor, so it doesn’t take much to move this market,” he added.

Gold has struggled to hold its ground since hitting a record $1,264.90 an ounce in late June on concerns over euro zone sovereign debt, which boosted interest in the metal as a hedge against currency volatility.

Holdings of the world’s largest gold exchange-traded fund, New York’s SPDR Gold Trust, were steady at 1,314.211 tons on Friday. They have slipped more than 6 tons in July so far but are still up more than 180 tons since the start of the year.

Platinum was at $1,504.50 an ounce against $1,509, and palladium was at $441.45 against $446.78.

Silver was at $17.53 an ounce versus $17.79.

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(Additional reporting by Jan Harvey in London; Editing by Lisa Shumaker)

Gold drops to lowest since May