Gold drops over 2% for lowest close in a month

Prices set for lowest close in a month on Fed taper expectations

By Myra P. Saefong and Victor Reklaitis, MarketWatch

SAN FRANCISCO (MarketWatch) — Gold futures dropped more than 2% on Thursday as expectations that the U.S. Federal Reserve will announce a decision to taper its stimulus measures at a meeting next week helped push prices to their lowest level in a month.

Analysts said the metal’s drop below key chart levels accelerated selling and gold was also under pressure from reduced expectations for a U.S. strike on Syria, which dulled haven demand for the metal. 

 

Meanwhile, GFMS forecasts that gold prices will edge higher for the rest of the year and head toward $1,500 in early 2014 before slipping lower again.

On Thursday, gold for December delivery GCZ3 -1.47%  tumbled $33.20, or 2.4%, to settle at $1,330.60 an ounce. Prices, based on most-active contracts, settled at their lowest level since Aug. 13, according to FactSet data.

December silver SIZ3 -1.49%  dropped $1.02, or 4.4%, to $22.15 an ounce. Prices also closed at the lowest since mid-August.

Gold is “under punishing selling pressure after the support zone of $1,360 was broken this morning with massive selling orders,” said Naeem Aslam, chief market analyst at Ava Trade, in emailed comments. He said the next immediate support areas for the precious metal come at $1,280 followed by the $1,220.

Ross Norman, CEO of Sharps Pixley, said key technical support levels of $1,357 and $1,350 an ounce have given way and opened up the market to more selling. “With things quieter on the Syria front and really not much to add on taper, the market is behaving quite technically just now and traders very much studying the charts.”

In related news Thursday, Nanex Research said a large sell order among gold-futures contracts caused a circuit breaker to trip and shut down electronic trading on Globex for 20 seconds early Thursday.

The CME Group CME +0.03%  referred to the 20-second episode as a “Stop Logic Event.”

“A 20-second pause is the standard Stop Logic period for overnight, electronic trading in our metals complex,” a CME spokesman told MarketWatch.

“Stop logic introduces a momentary pause in trading, lasting between 5-20 seconds, to prevent excessive price movements from cascading stop price orders,” according to the CME. 

Economic data released Thursday fueled expectations that the U.S. central bank will start reducing its $85 billion-a-month bond purchase program at the Federal Open Market Committee meeting on Sept. 17 and Sept. 18.

Data showed lower-than-expected initial weekly jobless claims, but the government attributed the surprise drop to processing delays rather than a sudden improvement in the labor market.