3:29pm EST 3.5.12
By Frank Tang and Jan Harvey
NEW YORK/LONDON (Reuters) – Gold fell
on Monday, dropping with equity markets after China cut its economic growth targets, and the precious metal could pull back further if it fails to hold key support after last week’s sharp sell-off.
Bullion fell 1 percent after China, viewed by many as the engine of the global economy, cut its 2012 growth target to an eight-year low. A disappointing survey of euro zone private-sector activity also weighed on sentiment.
Gold recovered somewhat on a slightly weaker dollar, but investors remained cautious after last week’s sudden 3.5 percent drop briefly sent the metal toward a key technical support level.
“The bears will score a major victory if they are able to send prices below the longer-term 200-day moving average. Until then, one can expect sideways action to ensue,” said Adam Sarhan, CEO of Sarhan Capital.
Gold charts on a weekly basis remained weak after the metal broke below key trendline support from its bullish double-bottom pattern, Sarhan said.
Spot gold was down 0.5 percent at $1,703.79 an ounce by 2:35 p.m. EST.
Gold has held its 200 day moving average, currently at $1,675 an ounce, since mid-January. Should it slip below that level, analysts said the metal could test $1,650, an area of support from its previous tumble in January.
U.S. gold futures for April delivery settled down $5.90 an ounce at $1,703.90.
Trading volume was decent but 20 percent below its 30-day average, preliminary Reuters data showed, in line with turnover in gold’s previous session.
Gold fell along with other commodities after China lowered its 2012 growth rate to 7.5 percent from 8 percent. It kept its inflation target unchanged at 4 percent.
Also weighing on sentiment was a drop in Markit’s Eurozone Composite PMI which showed a sharp downturn among Italian and Spanish businesses dragged the euro zone’s private sector back into decline in February.
Gold’s losses were limited as the dollar eased against the euro, which rebounded despite lingering worries about Greece’s progress in completing its debt deal.
FED EYED AFTER SELL-OFF
Gold’s 3.5 percent loss last week, its worst weekly performance since mid-December, came after Federal Reserve Chairman Ben Bernanke gave no further hints of any imminent U.S. quantitative easing. Year to date, bullion was still 9 percent higher.
Dennis Gartman, a veteran trader, said that investor psychology must be repaired before substantive support will be found. Margin selling could also accelerate gold’s losses below $1,700 an ounce, he said.
Analysts say that, while gold is likely to consolidate in the short term, in the longer run it remains firmly underpinned by ultra-loose U.S. monetary policy, portfolio diversification and strong physical demand from Asia.
Morgan Stanley said in a note that Bernanke’s testimony last week did nothing to weaken key bullish factors for gold, including negative real interest rates and accommodative monetary policy, which remain key drivers for investment demand.
Silver lost 2 percent at $33.75 an ounce. It fell 2.5 percent last week.
Platinum was down 2.2 percent at $1,656.24 an ounce, while palladium gained 0.2 percent to $701.72 an ounce.
(Editing by Dale Hudson and Jim Marshall)