(Adds analyst comment)
Sept 26 (Reuters) - Gold’s long-term rally has come to a grinding halt in the past three weeks, with prices down nearly 20 percent from a record peak hit on Sept. 6.
Analysts cite dollar strength, liquidation by hedge funds looking to cover losses in other markets and volatility undermining gold’s appeal as a safe haven as possible reasons for the sharp falls.
Spot silver , far more vulnerable to worries about economic growth because of its industrial uses, hit its lowest since January, and is down 45 percent from its April peak.
Following are some analyst views on the market:
“Money used to be looking for places to invest and it’d go to commodities, to gold and silver.
“The severity of debt problems in Europe, the benign U.S. inflation outlook and the consequent safe haven flows back into the U.S. are leading to a significant strengthening of the U.S. dollar. As an inflation hedge, gold may no longer be attractive. But on a long-term basis, gold will still hold its own value and see its price increase over time.”
DOMINIC SCHNIDER, HEAD OF COMMODITY RESEARCH, UBS WEALTH MANAGEMENT
“From a technical perspective, gold is not yet in oversold territory. The strength in the broad uptrend is fading.”
“Since we have seen strong physical demand picking up from Asia and seasonally we are entering into a stronger demand period, the metal should start to bottom out.”
“Many have highlighted the risks of gold being in overbought territory, having gone up in a straight line in the past four years.
“With recessionary pressure piling up, flight to safety means flight to really safe investments, and those are the U.S. dollar and U.S. Treasuries.”
TOM PAWLICKI, PRECIOUS METAL AND ENERGY ANALYST, MF GLOBAL SECURITIES
“Open interest has been falling since the Sept. 6 peak, which also indicates long liquidation.
“What we’re surprised about though is that there haven’t been many defections by ETF investors. We therefore think that the market won’t find a bottom until a sizeable portion of the long trade exits.”
“Gold has broken below its 100-day moving average and 150-day moving average, and the short term outlook is looking bearish.
“For the longer term, after prices stabilise and life returns to normal, safe-haven flow will slowly come back. In 2012, there is a chance that gold could reach $2,000 an ounce.
“Beyond this correction, gold still has performed well for 2011. In the short term it has taken a huge beating, as investors have been turned away by huge volatility, strength of the dollar, and the CME margin hike — these are some of the factors that have caused gold prices to come down.
“In the short term, investors will remain cautious, to see if we are really headed down to another global recession, and if the Fed will announce stimulus plan in its November meeting. These are some of the cues that gold will take its direction from.”
PAUL BLOXHAM, CHIEF ECONOMIST AT HSBC FOR AUSTRALIA AND NEW ZEALAND
“Our forecast for gold for next year is $2,025 an ounce as gold is going to attract a lot of cash flow as a safe haven investment.
“It is hard to say how far lower gold will go now because a lot of the developments we are seeing now are beholden to the political developments. Going forward, over the next five years we expect gold prices to come down $1,500 as supply-demand fundamentals take over.”
“Cash is king. There is no safe trade any more. Gold is still a safe haven, but not a safe trade at the moment. People are getting out of everything to get cash, and waiting for the storm to subside.
“It is a short-term phenomenon. At this point no one can really pin down where the bottom is. But once we start to see the market recover, money will start piling back in and people will chase the recovery.”
LARRY LOVRENCIC, EXECUTIVE DIRECTOR AT FIRST PACIFIC SECURITIES IN AUSTRALIA
“Based on the monthly Ichimoku chart, the market remains bullish in the long-term and medium-term time frame but is now neutral in the short term.
“Potential support is at $1,614 and then at $1,425.” (Reporting By Jane Lee, Rujun Shen and Manash Goswami in SINGAPORE; Editing by Michael Urquhart)