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Gold investors at several firms said gold prices could correct sharply, citing overvaluation. While that does not mean prominent bulls are now bears, they recommended investors take profit on gold holdings after the precious metal traded briefly above $1,900 on Tuesday for the first time.Spot gold rebounded more than 1 per cent to above $1,853 an ounce on Wednesday after sliding more than 3 percent in the previous session, its biggest daily fall in a year and a half.Gold gained nearly 9 per cent in the six sessions before Tuesday’s fall and is up by more than $400 since July.Independent investor Dennis Gartman, said he was reducing his long positions on gold in euros and sterling by a third on Tuesday and another third on Wednesday.“Perhaps things have become a bit too frothy, and reduced rather than increased exposure seems reasonable and wise,” Gartman said. A resurgence in investment demand has fuelled gold’s rally in the past decade, particularly during periods of global economic slowdown, growing from 4 percent of total demand for gold in 2000 to over 39 percent in 2010, according to Citigroup.“However, we caution that this very aspect that provided support for gold over this time may result in its downfall going forward,” the bank said in a note. “Even a slowdown, let alone a decline, in net investment flows can have a materially negative impact on the gold price from current levels.”Wednesday’s bounce showed gold’s appeal is far from fading. “It’s premature to call it a correction. But there is quite a bit of downside risk if gold breaks below $1,800 on a sustained basis. It may go lower to $1,700 or so,” said Ong Yi Ling, analyst at Phillip Futures.UBS metals strategist Edel Tully said the Swiss bank had “certainly noticed an increase in clients looking to book profits,” although she said this did not yet constitute a trend.In a note on Tuesday, Tully cautioned that the risk of more margin hikes from CME Group was rising after the US commodity exchange hiked margins by 22 per cent in August and the Shanghai Gold Exchange lifted margins twice in a month. Longer-term gold holders say significantly cutting gold positions ahead of the Jackson Hole meeting could backfire.“Technically gold is very over-extended. If you are a short-term momentum player with a very short-term time horizon, yes, there is money to be made on the short side of the equation,” says Ashok Shah, chief investment officer at London & Capital. Mark Luschini, Chief Investment Strategist at Janney Montgomery Scott, said on charts, gold is vulnerable for a sharp pullback as it is trading at $400 above its 200-day moving average. “From a purely technical standpoint, I think it’d be wise to take some chips off the table,” Luschini said.Meanwhile, India gold extended losses from its peak on Wednesday as investors continued to take profits. Gold and silver fell further at the bullion market here on sustained profit-taking following declining trend in the overseas market.Standard gold (99.5 purity) dropped by Rs 295 per 10 grams to finish at Rs 27,510 from Tuesday’s closing level of Rs 27,805. Pure gold (99.9 purity) also slid Rs 300 per 10 grams to Rs 27,630, compared to Rs 27,930. Silver ready (.999 fineness) plummeted by Rs 955 per kilo to end at Rs 64,330 from Rs 65,285 previously. [More]
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