Gold Sells off Despite Weak USD

There is no cogent and fundamentally viable explanation for the recent sell-off in metals, occurring simultaneously alongside a sell-off in the US dollar Index, a rally in the euro and a rise in equities (Dax at 19-month highs). Metals analysts and bullion brokers citing “clients’ lack of demand above 1750”, while others dismissing as mere technical trading inside the 1640-1760 triangle as long as no clear direction is obtained on the Fiscal Cliff.

Trying to make sense of this via the “fundamentals” route, we could explain it to be declining risks of a Greek exit from the Eurozone, which reduces the need for gold to flex its safe haven lustre. Another explanation is easing chance of OMT bond purchases from the ECB following the bank bailout in Spain and the eventual disbursement of Greece’s £33bn tranche and the debt buyback. Yet, we cannot mention fundamental catalysts without the Federal Reserve’s quantitative easing. With the “purchases” part of Operation Twist likely to be renewed next month with an additional $40-45bn in purchases of US government securities, alongside the existing $40bn in monthly purchases of agency mortgage-backed securities.

We may never run out of fundamental explanations.

Technically, gold remains supported atop a key confluence level of support–200-day moving average, coinciding with 55-week moving average and the trendline support at the June trendline. This level stands currently at 1660-65. A break below this level (albeit unlikely considering the need for the Fed to step) could trigger 1620 and potentially 1550. But the 55-WMA (held since early Sep) is seen holding for now. Also bear in mind, central banks are notorious for buying bullion at key technical levels  (and usually more attractive valuations), especially near month-end and year-end.

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