Gold tumbles to 6-week low on dollar strength, technical selling

Investing.com - Gold futures fell to a fresh six-week low during U.S. morning hours on Tuesday, as a combination of a broadly stronger U.S. dollar and some technical selling weighed on the precious metal.

Investors are also awaiting the outcome of the Federal Reserve's two-day policy meeting on Wednesday.

On the Comex division of the New York Mercantile Exchange, gold futures for December delivery traded at USD1,706.45 a troy ounce during U.S. morning trade, tumbling 1.15%.      

Prices fell by as much as 1.5% earlier in the session to trade at a daily low of USD1,705.55 a troy ounce, the cheapest level since September 7.

Gold prices were likely to find support at USD1,688.85 a troy ounce, the low from September 7 and resistance at USD1,754.95, the high from October 17.

Gold’s losses accelerated after prices broke below key support levels close to the USD1,715-level shortly after the U.S. session began, triggering fresh sell orders amid bearish chart signals.

The precious metal could see further losses in the near-term after having failed to break above the key USD1,800-level earlier in the month.

Gold futures rallied to an 11-month high of USD1,798.05 a troy ounce on October 5, boosted by ongoing expectations policymakers around the world will launch more stimulus to support the weak global economy.

Market sentiment was hit as a downgrade of Catalonia and four other Spanish regions by ratings agency Moody’s added to uncertainty over when Madrid may formally request a bailout.

Market players have been anticipating for the past month that the Spanish government would ask for a full-scale sovereign bailout.  

A bailout would allow the European Central Bank to step in and buy Spanish sovereign debt, which would result in reduced borrowing costs for the debt-strapped nation. But Spain has been reluctant to do so because it may come with conditions on its budget.

The risk-off trade environment saw the U.S. dollar hit a one-week high against the euro, while the dollar index, which tracks the performance of the greenback against a basket of six other major currencies, gained 0.5% to trade at 80.06, the highest since October 11.

A stronger U.S. dollar usually weighs on gold, as it dampens the metal's appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.

Meanwhile, gold traders are turning their attention to the Fed’s policy meeting on Tuesday and Wednesday after the central bank announced its third round of quantitative easing last month.

The Fed vowed in mid-September to buy an average of USD40 billion of mortgage-backed securities a month until the economy shows significant improvement.

Moves in the gold price this year have largely tracked shifting expectations as to whether the U.S. central bank would pump more money into the financial system.

Elsewhere on the Comex, silver for December delivery fell 1.4% to trade at USD31.80 a troy ounce, while copper for December delivery sank 1.9% to trade at USD3.553 a pound.