The most active December gold contract on the Comex division of the New York Mercantile Exchange settled at $1,639.80 an ounce, down 9.6 per cent. Gold fell as investors sought to sell winning positions to raise cash or meet margin calls in other markets. There was widespread talk of possible selling by big hedge funds covering losses in other markets. Yesterday, trading volumes in December futures at 323,000 lots were 25 per cent above the one-month average. The weekly open interest position jumped 489,577 lots from a week-ago level of 189,056, suggesting build-up of short positions by traders.
The trading pattern on Friday in the most-active December gold contract on the Comex division of the New York Mercantile Exchange suggested a price level of $1,623 an ounce next week. On a weekly market picture chart, gold is expected to touch $1,550. December futures closed below the lower band of value area (1,645) and TPO counts below the Point of Control (PoC-1,745) were significantly higher at 95 per cent, suggesting sellers' dominance. Poor volume above $1,700 suggested a strong resistance level for December futures next week. Buying was seen at $1,625-1,650-strike put options, which indicated participants had taken a bearish view on gold prices.
The CME Group, which oversees trading in US gold and silver futures, responded to the 10 per cent fall in gold and silver prices by raising margins, or deposits, required on trades of the two precious metals. The move would further squeeze the most optimistic investors in gold, who are trying to hold onto long positions or bets on higher prices. The margin on gold is increased by 21.5 per cent to $11.475 from $9.45. The change would take effect after the close of trading on Monday.
Gold prices could rebound next week, as bargain hunters seek to buy the metal up at prices not seen since August, but not everyone is convinced gold will be able to rally from the sharp break it suffered this week. Some technical chart analysts said in the short-term, damage had been done to gold prices and further weakness was expected. Those who see lower prices are also skeptical that global leaders will take much action beyond pronouncement to stabilise frail outlooks. In the near term, people are not interested in buying gold in the face of fears in the economy.
Hedge funds, which have been ratcheting down their positions in gold futures since early August, were quickly named as the culprits in the latest sell-off. Some traders said hedge funds were beginning to unwind, or close out, what has been a very popular and profitable trade for the last 18 months. Other market participants said hedge funds were selling their positions in gold to raise cash to meet increased capital demands for their borrowings from Wall Street banks, as the assets they have put up as collateral, like other commodities or stocks, have declined sharply in value.
