(Kitco News) - Gold prices are starting the week under modest pressure as U.S. markets are closed for the Presidents Day long weekend.
After seeing its best week since 2011, gold hit a low of $1,202.7, Monday, in a light trading activity. In electronic trading, April Comex gold futures last traded at $1,203.20 an ounce, down $36.20 on the day.
Silver prices have been even harder hit, falling to a session low of $15.230 an ounce Monday. March Comex silver futures last traded at $15.270 an ounce, down 52 cents on the day.
The selling pressure Monday, is a continuation of the activity seen overnight during the Asian trading session as Chinese markets opened after being closed all week for Lunar New Year Celebrations.
Analysts weren’t surprised with the selling pressure during the Asian trading session. Sam Laughlin, precious metals trader at MKS Precious Metals, noted that when Chinese markets closed last week, prices were $60 lower.
In other financial news, during the weekend, China’s business magazine, Caixin, published an interview with People's Bank of China Governor Zhou Xiaochuan, who said there was no basis for a further depreciation of the yuan. These comments have removed some urgency for Chinese investors to buy gold. Analysts have noted that Chinese investors have been strong gold buyers because of currency devaluation fears.
Economists at Capital Economics also said some recent fears of deprecation of the yuan are overblown.
“There is little to justify speculation that the authorities will soon be forced to devalue China’s currency, which could unleash another wave of deflationary pressure and trigger further turmoil in global financial and commodity markets,” said Julian Jessop, chief global economist at the U.K-based research firm. “The fact that the PBOC has been selling large quantities of foreign exchange in order to prop up the value of the renminbi makes it clear that it is trying to avoid a significant depreciation.”
Also overnight, Japan stoked fears of a global recession. Japan's economy contracted at a worse- than-expected 1.4 percent annual pace last quarter. The data raises doubts about the impact Prime Minister Shinzo Abe's extensive stimulus policies are having on the country’s anemic consumer demand and sluggish exports.
The data created a modest bounce in the U.S. dollar against the Japanese yen, which is helping the U.S. Dollar Index start the week with a gain of 0.6% at 96.565 light electronic trading. A stronger U.S. dollar also represents another headwind for the gold market.
Although gold is starting the week on the back foot, most analysts remain confident that the yellow metal can hold on to its renewed momentum. Many analysts noted that gold could fall to $1,200 and still maintain its current uptrend.
In a recent interview with Kitco News, Bill Baruch, senior commodity broker at iiTrader, said that he would be a buyer of gold on dips as prices remained above $1,180 an ounce. A break below that support level would negate the latest rally, he noted.
Peter Hug, global trading director at Kitco Metals, said that the correction is very healthy for the market, on a technical basis.
“If the fundamentals remain intact and we can hold or consolidate around the $1,208-$1,212 level, the next leg higher will have a much more solid foundation,” he said.
By Neils Christensen of Kitco News; nchristensen@kitco.com
Follow me on Twitter @neils_C
