ForexSpace.com - With crisis liquidation risks elevated, those with their eyes on the forex gold price charts should pick their havens carefully. Yesterday saw a retreat from the yellow brick by risk-averse traders which sent gold prices falling $21.84 to trade at $1, 557 an ounce. Having previously captured the hearts of haven-hunters, the precious commodity is now repelling traders thanks to its "recoupling with other commodities and returning to the inverse relationship with the dollar" according to Simon Denham (pictured), MD of Capital Spreads.

"Gold had previously been the asset which traders had rotated into amidst other moments of uncertainty during the crisis, but it has recently caught traders off guard", he added. "Risk unwind with Q1 gains undone could spiral into a full on extended crisis liquidation if the market is not careful, with echoes of Lehmans action as a result."

With worries over the euro zone's single currency reaching fever pitch and FinMins debating the impact of a so-called 'Grexit', the precious commodity remains vulnerable as investors continue to seek safer ground. This new figure represents gold's lowest ebb since Dec. 30 at $1,547.99 an ounce and is down more than 6 percent in May so far, on track for its worst monthly performance since last December according to forex gold price and commodity charts.

"Tread carefully"

With such low prices, bargain-hunting traders are likely to fancy taking their chances with a stake in the precious commodity. But Denham warns against making any rash decisions merely on superficially low prices. "Gold bugs are starting to flutter at the 'value' on offer as the precious complex comes under some strain along with commodities more broadly, but wannabe safe haven hoarders need to tread very carefully indeed.

"They may be standing in front of a steamroller as far as the short-term (3mth-6mth) outlook is concerned", he added. "We continue to see current price action and the prevailing global market mode as risk unwinds that could easily tip over the edge into 'crisis liquidation'."

Gold remains vulnerable while the euro remains in jeopardy, and with further Greek elections penciled in for next month and a surplus of ominous comments emerging from the mouths of FinMins, there is plenty of room for further declines. German data may have managed to keep the euro zone's GDP ticking over steadily and has provided a small boost to the shared currency, but the long-term prognosis according to most forex analysts when faced with a gold price chart, is for losses in the long run. "When German GDP came in at 0.5 percent, a lot higher than expected, the subsequent rally in the euro gave rise to a quick 10-dollar short covering rally in gold," top forex broker Marex Spectron said in a note. "This may deter the sellers from attempting another push lower for the time being and the fact that $1,550 has basically held will probably spur a little bit of buying interest.

"However, if the euro should turn round again then gold will be pushed lower with it," it added. "I think the market has probably done enough on the downside for the time being if the euro can hold."

Asian buoyancy?

Demand from Asian consumers who noticed the price slide to below $1,550 an ounce also worked in the precious metal's favour yesterday - aiding its creep back up once the German data was announced. But local analysts in India are warning that a fall is likely as the rupee strengthens and sends dollar-priced bullion outside the grasp of many potential buyers.

"Gold could be volatile due to rupee moves and could fall lower if the currency appreciates," said Gnanasekar Thiagarajan, director with Commtrendz Research. The Indian rupee rose to 53.88.89 to the dollar on Tuesday after being pulled down to as low as 53.50 from its intraday high of 54.15 thanks to 'massive' intervention by the RBI who appear determined to defend beleaguered banks.

Among other precious metals, silver was up 1 percent at $28.40 an ounce, having fallen to its lowest since Jan. 3 earlier at $27.93.

The core of this issue, argues Denham, is the idea that this kind of "counter-intuitive" trading pattern is likely to continue as global markets continue to experience turbulence. "Gold of course is just one particularly 'disconcerting' example of the sort of counter-intuitive dislocation that could take hold if current liquidation mode follows the threatened path", Denham says.

"This story applies to global asset trades across the board where the biggest post 2008 reflation winners have the biggest potential unwind risks attached to them, irrespective of relative value considerations (this is the main worry for the US bourses where outperformance has been very justified but now brings its liabilities). Counter intuitive trade can run riot, along with the logical."

Sarah Cox, Staff Writer