Forexpros – Gold futures plunged through key support levels on Thursday, dropping to the lowest level since early-July with moves amplified in poor year-end liquidity after an auction of long-term Italian government debt failed to ease concerns over the fiscal health of the euro zone’s third largest economy.
On the Comex division of the New York Mercantile Exchange, gold futures for February delivery traded at USD1,530.55 a troy ounce during early European afternoon trade, tumbling 2.15%.
It earlier fell by as much as 2.4% to trade at USD1,526.45 a troy ounce, the lowest since July 8.
Gold futures were likely to find support at USD1,510.45 a troy ounce, the low of July 6 and resistance at USD1,594.25, the previous day’s high.
Trading volumes were expected to remain light ahead of the New Years holiday weekend, as many traders have closed books before the end of the year, reducing liquidity in the market and increasing the volatility.
Gold prices have declined for the past six trading sessions, the longest losing streak since October 2009. Prices have tumbled nearly 20% since hitting a record high of USD1920 in early September. Despite the slump, prices are still 10% higher on the year, on track for its 11th consecutive annual gain.
Italy’s Treasury sold just over EUR7 billion of long-term debt maturing between 2014 and 2022, below the maximum target of EUR8.5 billion.
The country sold EUR2.5 billion of 10-year bonds, maturing in March 2022, at an average yield of 6.97%, down from November’s euro-record high 7.56%. The country also auctioned EUR2.5 billion of three-year bonds, at an average yield of 5.62%.
Following the auction, the yield on Italy’s 10-year bonds traded at 7.1%, above the critical 7% threshold widely seen as unsustainable in the long-term.
The auction was seen as the first test of European banks’ willingness to purchase long-term sovereign debt of distressed euro zone countries, following last week’s nearly EUR500 billion cash infusion by the European Central Bank.
For much of the last year, investors’ typical reaction to bad news from Europe was to buy gold, as it boosts the safe haven appeal of the precious metal, but that relationship has unraveled recently, with investors preferring the relative safety of the U.S. dollar.
Year-end selling by hedge funds and tight liquidity in European interbank money markets have also contributed to recent price falls.
The European Central Bank said earlier that overnight deposits at its lending facility receded to EUR436 billion, after hitting a record of EUR452 billion the previous day, underscoring European banks’ nervousness to lend to each other.
Swiss lender Credit Suisse said in a report earlier that, “The stress in the banking sector has increases as indicators such as the euro/dollar basis swaps show. There is a shortage of liquidity and, if you have to refinance, you have to sell your assets, including gold.”
“Gold is not a safe haven assets against a liquidity crisis. Banks need to sell assets to raise cash and avoid bankruptcy,” the report added.
Elsewhere on the Comex, silver for March delivery tumbled 2.25% to trade at a three-month low of USD26.61 a troy ounce, while copper for March delivery shed 0.45% to trade at USD3.351 a pound.
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