Despite huge uncertainties dogging the global market, gold has been struggling to break out of its narrow price range of $1,200–1,230 per ounce in recent weeks even as strong dollar and weak demand combine to pressure the metal. Many of the gold supportive factors are currently in the sidelines.

Speculators, often euphemistically called investors, have been exiting their long positions forcing a steady fall in price since the beginning of this month. In the first two weeks, net short positions were created on a marked scale. A robust stock market has also been unconstructive for the metal.

Data suggest Asian demand is weak. In India, despite the Diwali festival season when demand usually peaks, consumer interest has been tepid. A substantially weaker rupee raised domestic prices of the yellow metal over the last four weeks which resulted in demand compression.

 

Other precious metals

Silver too has been facing the heat with the market sliding rapidly. Recently, silver prices slid below the psychological $14/oz, the lowest level since January 2016. Again, investors created net short positions in this metal too. In other words, speculative financial investors are not sanguine about gold and silver prices moving up.

At the same time, such market participants seem to be optimistic about palladium and platinum prices. Palladium has been the star performer in the precious metals group as it recently hit an all time high rate of $1,180/oz, soaring by some 40 per cent since mid-August in addition to coming close to gold and showing a 17-year peak relative to platinum.

Some experts believe, the strength was drawn from optimism that China appeared to be more willing to negotiate with the US on trade. Whether it would happen is unclear; but it is likely that palladium has overshot on the upside and may slide back in the coming weeks.

Weak car sales especially in China and Europe means that demand for palladium should not increase in the coming months. This should cause price correction. In case of platinum, some net long positions have been created.

Optimistic future

Where is the market headed? There is emerging consensus that by mid-2019, the US may begin to decelerate as the positive effects of the stimulus and interest rate hikes begin to fade. If anything, the Federal Reserve’s rate hike cycle may come to an end sometime in the second quarter of next year.

That should prove positive for gold and silver as the dollar would begin to weaken and the stock market may lose steam. A ‘risk-off’ environment is sure to boost gold’s safe haven status.

While decreased demand and substantially weak Rupee during the just-concluded festival season in India did little to cheer gold, a slight firming of the rupee in the last few days – after crude oil prices began to slide from their early October peaks – has surely softened the rates to an extent.

But going forward, there is expectation that the rupee may gain further and move towards 68-69 levels to a dollar. That should provide additional fillip to gold. At the same time, given the less-than-satisfactory distribution of rainfall, drought-like conditions in many regions and not-so-attractive crops prices, rural demand is likely to continue to be subdued.

There is also reason to believe that the government will soon announce a policy for setting up spot exchange for gold. That should boost the prospects of price discovery in the domestic market, although it is to be seen how soon and how well systems are put in place.

The writer is a policy commentator and commodities market specialist. Views are personal

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