By Neils Christensen of Kitco News
Thursday December 01, 2016 11:54
(Kitco News) - After ending its worst month in nearly three years, the gold market remains on the back foot, with some analysts citing an increased risk that prices retest last year’s lows.
A strong U.S. dollar, higher bond yields and rising interest-rate expectations are all factors that have weighed on gold, as the price broke below another major support level around $1,172 an ounce, which presents the 61.8% retracement level of the move from last December’s lows to July’s 13-month high. Comex February gold futures last traded at $1,169.10 an ounce, down 0.41% on the day.
Jim Wyckoff, senior technical analyst at Kitco.com, said that the latest collapse of a major support level adds to gold’s long-term bearish outlook. He added that he sees one more major level to watch: $1,110 an ounce, and if that breaks, then the next target is last year’s lows at $1,049.60.
Karen Jones, senior technical analyst at Commerzbank, said in an interview with Kitco News that she sees an 80% chance that gold gives up all its gains seen in the first half of the year. She added that she ultimately sees gold stabilizing between $1,000 and $1,050 an ounce.
“I don’t see gold going below $1,000 as that is a long-term pivot point for the market, and I think that will start to attract some stability,” she said. “Yes, technically gold looks very negative, but I think we are closing to finding some stability.”
Darin Newsom, senior analyst at Telvent DTN, told Kitco News that he sees a 75% chance that gold, continues to push lower and even retest the December lows. He added the question that he is asking himself is whether the market is forming a classic five-wave Elliot pattern.
He explained that in a traditional five-wave pattern, it is not uncommon for prices in the second wave to retrace 75% to 80% of the gains in the first wave. This correction would then set up a third-wave movement, which should push prices eventually above the July highs.
“I don’t think we will actually get to $1,050; we will get pretty darn close,” he said. “For this to be a true, wave-five pattern, the previous lows need to hold.”
If $1,050 does hold, Newsom said that he would be a long-term buyer of gold.
Fawad Razaqzada, technical analyst at City Index, said that he would give even odds of gold retesting its previous lows. He said that he is not convinced that there has been a definitive break of the 61.8% retracement level.
“I think has been a very one-sided market and when you see this kind of sentiment, I think that is an indication that you are close to a bottom,” he said.
Razaqzada explained that he is waiting to see if $1,115 to $1,120 level will hold as support and if it does, it could start attracting some bargain hunters. He added that retracements of 61.8% and 78.6% are traditionally where corrections end and markets start to stabilize.
Jones is also looking at the $1,116 area as the next near-term support level; however, she added that with the market’s current momentum, this might not prove to be a significant barrier.
“You just can’t ignore the fact that gold has been in a strong five-year downtrend,” she said.