Gold Set for Dramatic Fall If Central Bankers Disappoint
The recent rally in gold, which touched a near six-month high this week, is unlikely to last, say commodity analysts, who forecast prices could fall 10 percent over the next month if central bank actions disappoint.
Trading close to key resistance level $1,700 an ounce, gold prices have had a bull run over the past one month, rising 5.5 percent, on expectations of monetary easing by both the U.S. Federal Reserve and the European Central Bank (ECB). (Read More: Largest Holders of Gold.)
But Warren Gilman, CEO of CEF Holdings, said this rally has not been justified given the lack of clarity from policymakers in the West.
The ECB is scheduled to meet Thursday and the Fed (learn more) next week, and Gilman warns that a sharp fall in gold prices could be coming very soon if the outcome of these central bank meetings disappoints.
“I’m expecting more rhetoric and little in the way of concrete action. The fall in gold could happen as quickly as this week, as we start to see Europe hasn’t been sorting itself out and the solution to solving the debt crisis is not near,” Gilman told CNBC.
Andrew Su, CEO of Sydney-based commodity brokerage Compass Markets, agreed that gold is vulnerable to a “dramatic” downturn, as he believes the ECB (learn more) is unlikely to provide any definitive plans in terms of its bond-buying program.
“We have significant resistance at $1,700 and have a lot of opportunity for market disappointment over the next couple of days,” Su said.
He adds that gold could hit $1,530, a key technical support level, and then even move below very quickly to $1,500. “We are looking to short gold at current levels,” he said.
Dhiren Sarin, chief technical strategist, Asia-Pacific at Barclays, says while he expects a temporary pullback in gold in the coming days given the “significance” of the psychological hurdle at the $1,700 level, he is ultimately looking for the precious metal to move higher.
“As long as gold stabilizes in the $1,625 to $1,640 area, we would view a pullback as a healthy development and set up for further gains,” Sarin said.