Investing.com - Gold futures came under heavy selling pressure during European morning trade on Wednesday, as growing concerns over political uncertainty in Greece boosted the U.S. dollar, while a wave of technical selling further weighed.
On the Comex division of the New York Mercantile Exchange, gold futures for June delivery traded at USD1,590.85 a troy ounce during early European trade, slumping 0.85%.
It earlier fell by as much as 1.15% to trade at USD1,587.45 a troy ounce, the lowest since January 3.
Gold futures were likely to find support at USD1,572.65 a troy ounce, the low from January 3 and short-term resistance at USD1,642.95, the high from May 7.
Investors continued to monitor political developments in Greece, as the debt-laden country struggles to form a coalition government following weekend elections.
Speculation that Greece’s new government will reject terms of its financial rescue grew after Alexis Tsipras, the leader of the leftist Syriza party who is in charge of forming a coalition, declared Tuesday that Greece's financial aid package is null and void, and called for a moratorium on Greek debt payments.
The political uncertainty fuelled fears that Greece will not have a government in place in time to secure its next tranche of international aid next month, as new elections look increasingly likely, fanning fears over a potential default and exit from the euro zone.
Investors were also eyeing developments in France, as Socialist President-elect Francois Hollande has advocated an approach to tackling the debt crisis centered more on growth, which may create tensions with Germany's insistence on fiscal austerity.
Although gold’s appeal as a safe haven is boosted during times of economic uncertainty, the euro zone’s debt crisis has done little to bolster appetite for the precious metal.
A weakening euro and stronger dollar have weighed on gold instead.
The euro traded close to a three-month low against the U.S. dollar, while the dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.2% to trade at 80.10, the highest April 16.
Prices came under further pressure after breaking below key support levels, triggering fresh sell orders amid bearish chart signals.
Technical traders expect the next level of support for gold to be at USD1,580 after it broke below USD1,620, the lower end of the price range it had held since early April. A breach below the psychologically-key USD1,600-an-ounce level further weighed.
Some market participants noted that heavy losses in stocks and other commodities markets accelerated gold’s sell-off, as traders were forced to sell their gold holdings to raise cash to cover losses elsewhere.
Credit Suisse said in a report recently that gold could see further losses if money managers start paring their holdings of commodities and equities in anticipation of a worsening of Europe's financial position.
“As we saw at the end of last year, gold is a hedge against all kinds of crises, but not against a liquidity problem, when people are liquidating assets to raise much-needed cash. They also sell gold in this environment," the bank said in a report.
In October 2008, gold prices tumbled 18% as turmoil in global financial markets led to losses in global equity and commodity markets. The precious metal rallied 23% in the next two months.
Elsewhere on the Comex, silver for July delivery retreated 1.3% to trade at USD29.75 a troy ounce, the lowest since January 10, while copper for July delivery shed 0.15% to trade at USD3.671 a pound.
On the Comex division of the New York Mercantile Exchange, gold futures for June delivery traded at USD1,590.85 a troy ounce during early European trade, slumping 0.85%.
It earlier fell by as much as 1.15% to trade at USD1,587.45 a troy ounce, the lowest since January 3.
Gold futures were likely to find support at USD1,572.65 a troy ounce, the low from January 3 and short-term resistance at USD1,642.95, the high from May 7.
Investors continued to monitor political developments in Greece, as the debt-laden country struggles to form a coalition government following weekend elections.
Speculation that Greece’s new government will reject terms of its financial rescue grew after Alexis Tsipras, the leader of the leftist Syriza party who is in charge of forming a coalition, declared Tuesday that Greece's financial aid package is null and void, and called for a moratorium on Greek debt payments.
The political uncertainty fuelled fears that Greece will not have a government in place in time to secure its next tranche of international aid next month, as new elections look increasingly likely, fanning fears over a potential default and exit from the euro zone.
Investors were also eyeing developments in France, as Socialist President-elect Francois Hollande has advocated an approach to tackling the debt crisis centered more on growth, which may create tensions with Germany's insistence on fiscal austerity.
Although gold’s appeal as a safe haven is boosted during times of economic uncertainty, the euro zone’s debt crisis has done little to bolster appetite for the precious metal.
A weakening euro and stronger dollar have weighed on gold instead.
The euro traded close to a three-month low against the U.S. dollar, while the dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.2% to trade at 80.10, the highest April 16.
Prices came under further pressure after breaking below key support levels, triggering fresh sell orders amid bearish chart signals.
Technical traders expect the next level of support for gold to be at USD1,580 after it broke below USD1,620, the lower end of the price range it had held since early April. A breach below the psychologically-key USD1,600-an-ounce level further weighed.
Some market participants noted that heavy losses in stocks and other commodities markets accelerated gold’s sell-off, as traders were forced to sell their gold holdings to raise cash to cover losses elsewhere.
Credit Suisse said in a report recently that gold could see further losses if money managers start paring their holdings of commodities and equities in anticipation of a worsening of Europe's financial position.
“As we saw at the end of last year, gold is a hedge against all kinds of crises, but not against a liquidity problem, when people are liquidating assets to raise much-needed cash. They also sell gold in this environment," the bank said in a report.
In October 2008, gold prices tumbled 18% as turmoil in global financial markets led to losses in global equity and commodity markets. The precious metal rallied 23% in the next two months.
Elsewhere on the Comex, silver for July delivery retreated 1.3% to trade at USD29.75 a troy ounce, the lowest since January 10, while copper for July delivery shed 0.15% to trade at USD3.671 a pound.