Commodities

Gold continues to remain under downward pressure

G Chandrashekhar | Updated on November 19, 2019 Published on November 19, 2019

US dollar banknote roll and gold bars on white background. 3d rendered illustration.   -  Getty Images/iStockphoto

Gold, punters’ eternal favourite, continues to remain under pressure. Last week, price fell to a three-month low briefly breaking below $1,450 a troy ounce as forecast in these columns (see BL November 8). In other words, the metal has shed about $100/oz from the early-September highs.

Gold’s fortunes were, of course, swayed by the recent flip-flops in trade negotiations between the USand China. Developments on the anticipated trade deal will no doubt weigh on investor sentiment, and the metal is likely to be impacted.

Downward signals

The growing signs of a trade deal — probably the first phase of a series of deals — means that investors exit the yellow metal in droves and move to the equities market. This week, additionally, the US Federal Reserve minutes are due for publication on Wednesday. It is widely believed that the minutes will signal that further interest rate cuts may not be on the horizon for the time being.

Fed Chair’s recent Congressional testimony indicated that a rate cut again in December was unlikely. This will remove one more leg of support for gold. In other words, most of the precious metal’s support factors — geopolitics, trade war, US dollar, monetary policy — are all fading almost in tandem.

Fall in imports

If non-fundamental factors are not supportive, the fundamental factor of physical demand is doing even worse. Imports into two of the world’s largest consumers, China and India, have declined in recent months primarily on account of high domestic prices and depreciation of the national currency. Economic slowdown in both the countries is also seen discouraging jewellery sales.

The weak sentiment has resulted in outflows from gold ETFs. It is estimated that so far about 36 tonnes have moved out of ETFs.

Central buying is proving to be a silver lining for the gold market. Central banks of many countries are keen to boost their gold reserves in order to protect from any crisis. Last month, Serbia reportedly bought nine tonnes of gold. This followed purchases by countries such as Hungary and Poland.

Headwinds

Facing headwinds, gold is losing its appeal, at least for the time being. Net long positions on the bourses have been slashed. Even as financial investors continue to withdraw, further improvement in growth sentiment, possibly driven by a genuine truce between the US and China can put additional downward pressure on the yellow metal.

Silver, too, has been under downward pressure, hanging on to the coattails of gold and trading at well below $18/oz.

(The writer is a policy commentator and commodities market specialist)

Published on November 19, 2019
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