Dubai: Gold prices have slowly inched up this week, but the precious metal is looking exposed and will be experiencing a major price correction very soon, an analyst told Gulf News.
The bullion has settled into a higher range following the Brexit vote, hovering between $1,315 and $1,365 an ounce. Recent failed attempts to achieve major gains could send prices moving downward.
“The yellow metal has started to look exposed and the risk of another correction is lurking,” said Ole Hansen, head of commodity strategy at Saxo Bank. “The failure to mount a new attack at the highs, not least this past week when the dollar turned over, could indicate that the search for support is back on.”
Hansen believes that the gold rally could lose its steam over the short term, with the key levels of support at $1,315 and $1,300 an ounce. "We have increasingly seen that the only thing that can lift gold at the moment is when we see the dollar being sold," Hansen told Gulf News on Tuesday.
"[For] the longer term, I remain bullish but just like [in] May when hedge funds reduced a major long position, the risk of a repeat has been rising."
Other analysts, however, are forecasting the yellow metal to correct upwards, hitting $1,425 an ounce next month before retreating to $1,350 towards the end of the year.
Gold has so far gained more than Dh1 since the beginning of the week, with the price of 14 karat rising to Dh163 per gram on Tuesday compared to Dh161.75 on Sunday. Spot gold crept up about 0.6 per cent at $1,346.31 an ounce at 0348 GMT as expectations of another interest rate increase in the United States started to wither away, according to Reuters.
According to Karim Merchant, CEO and managing director of Pure Gold Jewellers, the yellow metal could maintain its strength this week, with the absence of positive economic data from the US.
“Gold recently came under a little pressure due to profit taking from institutional investors. However, recent flat data from US came as a surprise, gold may react to it,” Merchant told Gulf News.
“As long as gold remains above $1,300 an ounce, I think it will hold its bullish ground.”
Gold’s price movement beyond this week will depend on where the US dollar is headed and what actions the central banks will take. The head of the US Federal Reserve is expected to make a statement later this month, on August 26, at a major gathering in Wyoming.
“This annual even has become the Davos for central bankers and will be keenly watched with bonds, equity and commodity markets all looking for additional guidance,” said Hansen.
According to Georgette Boele, co-ordinator for foreign exchange and precious metals strategy at ABN Amro, expectations of Fed rate increases could again surface in financial markets, supporting the US dollar and weighing on precious metal prices.
“This will likely trigger a liquidation of net-long investor positions, resulting in lower precious metal prices,” she said in her research note.
The bank’s latest precious metals forecast placed gold at the $1,425 level for September. By December 2016, prices could average $1,350 an ounce.
Gold Rate: To keep up to date with gold prices, go to our gold rate page.
Currency Rate: To keep up to date with latest exchange rates, go to our currencies page.