Precious Metals Decline as Risk Sentiment Improves; Gold Drops Most and Palladium Least

Precious metals declined on Monday as fears that funding issues at Banco Espirito Santo might spill over into the wider Eurozone banking system eased, reducing demand for safe haven assets.

However, continued unrest in Ukraine and the Middle East prevented a much deeper fall in safety-seeking flows.

Gold dropped to as low as $1316.80, down 1.6%, from 11 July close. The move further distanced the yellow metal from the four-month high of $1345 touched on 10 July, when worries related to the Portuguese bank were significantly weighing on markets.

Silver fell to $21.13, down 1.3% from the previous close, and compared to the 10 July multi-month peak of $21.57.

Platinum and palladium fell too, the former by 1.2% to $1491 and the latter by 0.9% to $864. Platinum is holding not far away from the 10-month high of $1518.70 while palladium is close to the 13-year high of $875.75, both touched on 10 July.

The platinum group metals are supported by better demand outlook after several months of mine strikes that reduced supply.

Policy and Geopolitical Indications

The most important central bank heads such as the Fed Chair Janet Yellen, ECB President Mario Draghi, Bank of England's Mark Carney and Bank of Japan's Haruhiko Kuroda are scheduled to speak at various events this week, and fresh interest rate cues likely from their comments can influence risk flows globally.

But the most direct impact is likely from the Ukraine and Middle East issues which are now affecting the safe haven flows.

Gold Technical Outlook

The sell signal triggered by the moving average convergence divergence (MACD) has weakened the momentum following the upside 'flag break' in the yellow metal.

The metal is now testing the 23.6% Fibonacci retracement of the 3 June-10 July rally. Further selloff will take it to the next support line of $1305.90, the 38.2% level, a break of which will open the more important 50% mark of $1293.

A break of that will confirm the resumption of the downtrend since mid-March, opening up levels like $1268 and $1258 before retesting the 3 June low of $1240.

On the other hand, if gold manages to hold above the $1305 mark, a quick reversal is likely, towards new multi-month highs above $1345. The metal will have two-three minor stops before retesting the March peak of $1392.