Gold sharply down

Gold prices fell for the third day. After reaching 1 900 USD per ounce, many investors decide to take their profits, before the prices will try to test very important psychological resistance near 2 000 USD per ounce. The results of this rapid sell-off are the supply-side formations on the daily chart, which may even signal the end of a long-term uptrend. However, the probability of the further rise is still maintained as a basic scenario.

CME raised margins

CME Group decided to raise futures margins on the gold market for the second time this month. The same decision was taken by the Shanghai Gold Exchange. Non-commercial investors on Comex (CME Group) will have to pay 9450 USD per one futures (100 ounces of gold) – increase by 27%. Two weeks ago, deposits were increased by 22%. Then it also coincided with a correction on the gold market.

Fears of such a step has become one of the reasons for the strong sell-off on the market in the last two days. However, such a decision has been expected by many investors even a few weeks ago. On Wednesday the prices fell by 5.6% to 1757.30 USD per ounce -  the biggest one-day drop since March 2008.

Among other factors, which helped the sell-off, are the slight improvement in sentiment on financial markets before the Bernanke’s speech in Jackson Hole, strong short-term overbought and simple profit taking. It is worth mentioning that for the last 10 years the increase in prices was driven by the surge in the investment demand (ETF funds, bullions and coins). While the fundamental demand (jewelry, industry) remained stable. That is why the downside risk connected with the profit taking is quiet large.

Events to watch

Today's calendar is almost empty. Investors will only learn of the weekly data from the United States on applications for unemployment benefits. It is expected to decline to 405k.

Paweł Kordala

Disclaimer, investment risk warning
X-Trade Brokers Dom Maklerski S.A. does not take responsibility for investment decisions made under the influence of the information published on this website. more