October 5, 2016 / 10:16 AM / 10 months ago

PRECIOUS-Gold holds near 3-mth low as fan base shrinks

3 Min Read

* 200-day moving average at $1,258 within sight
    * Weak physical demand reinforces losses
    * major recovery unlikely without financial crisis

 (Recasts, adds comment, adds London dateline)
    By Pratima Desai
    LONDON, Oct 5 (Reuters) - Gold steadied on Wednesday after
plunging to three-month lows the previous day in a sharp
sell-off triggered by speculative selling and a break of key
technical support levels, which pushed the metal below the key
$1,300 level.
    Spot gold was up 0.4 percent at $1,273.26 an ounce at
0958 GMT, close to the low of $1,266.33 hit on Tuesday when the
price of the precious metal crashed 3.3 percent, its biggest
daily loss in three years. 
    Traders said a generally stronger dollar during September
had kept gold under pressure and that combined with a break
below the 100 day moving average around $1,310 accelerated
losses as funds reversed bets on higher prices.
    A break of the 200-day moving average at $1,258 could spark
another sell-off which could see the further losses towards
$1,248 a Fibonacci retracement level.
    "The stronger dollar, a break of key technical levels,
speculative positioning which was very long, weak physical
Chinese and Indian demand all contributed," said Carsten Menke,
analyst at Julius Baer.
    "A lot of speculators headed for the exit yesterday and that
happened in a quiet market. We could see more speculators head
for the exit, you could see a downward spiral, and the big risk
is it spills over into the physical market."
    A higher U.S. currency makes dollar-denominated gold more
expensive for holders of other currencies. 
    Hedge funds and money managers raised their net long
position in COMEX gold to 261,892 lots in the week Sept. 27, the
highest since September 13, U.S. Commodity Futures Trading
Commission data showed on Friday. 
   Also weighing on gold is weak demand from physically backed
exchange traded funds, at 56.753 million ounces
on Tuesday, not much higher than the 56.266 million ounces
recorded on Sept. 1.
    However, the proximity of the U.S. Presidential election and
the uncertainties surrounding the policies of the two main
candidates is expected to support gold until November.
    But a significant recovery is unlikely unless there is a
major financial crisis, said Andrew Cole, a fund manager at
Pictet Asset Management.
    "It could be something like a banking crisis in Europe or
nervousness about government debt ... something that requires a
massive liquidity injection that destabilises currency markets,
which by and large have been stable this year," Cole said.
    Elsewhere, silver rose 0.6 percent to $17.89 an
ounce, platinum gained 0.9 percent to $990 and palladium
 slipped 0.3 percent to $695.
    

 (Additional reporting by Swati Verma and Nallur Sethuraman in
Bengaluru; Editing by Louise Heavens)

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