Markets have commenced the week with an unexpected start following a spectacular drop in Gold during the Asian session that sent the yellow metal to a new milestone five-year low at $1080.
Gold dropping so sharply is a surprise and while the reports that China Gold reserves were half the expected level might have inspired additional selling pressure, it is the repeated comments of commitment from the Federal Reserve that they will begin raising US interest rates at some point this year that have continuously pressured Gold in recent months.
Despite all the Greece uncertainty, we saw a complete lack of buying interest towards Gold and I believe this spelled out to investors that there is much hesitation to purchase Gold as we approach the timing of a US interest rate rise and consequently inspired further bearish momentum.
Dropping below $1100 is a huge psychological move in Gold and if we close daily trading below this level, it extends the outlook for further falls.
Having said that, sell-on rallies has been the name of the game when it comes to Gold trading for at least the past couple of months and even if Gold does manage to recover its unexpected losses investors are probably looking at another future selling opportunity.
When you take into account that the Greece uncertainty was unable to promote any increased buying interest in Gold, it will require a swerve from the Federal Reserve when it comes to raising interest rates to encourage substantial gains.
Given that US economic data is continuing to improve and Janet Yellen is also repeating on a regular basis that US interest rates should begin to move later this year, both the mid-term and long-term outlook for Gold remain bleak.
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