Gold prices plunged to a new six-month low on Wednesday as the U.S. dollar strengthened, making the precious metal more expensive for buyers of other currencies. Gold prices have lost more than 3 percent just in June, which is the biggest monthly decrease since September 2017. Analysts consider that the reason behind golds weakening, is the US dollar strengthening and the latest developments in the US trade relationships, which is currently acting unilaterally. The US government is currently making various amendments to its corporate acquisitions regulations and this is giving bullion a hard time.
On Wednesday, US officials stated that they are willing to back down on imposing new 25% limits on Chinese ownership in U.S. tech companies, as news had suggested in previous days. In its place, the government would depend on the newly strengthened Committee on Foreign Investment in the United States to handle the matter. The specific issue between the US and China’s ongoing turmoil has not benefited the precious metal at all recently with traders giving up their long positions on the bullion. In the meantime, the scenario of Gold being plunged by some capitulation of investors, instead of being predominantly motivated by the dollar could be in display. A double confirmation of the pre-mentioned scenario is the fact that Gold-backed exchange-traded funds are currently going through their worst month since last summer, according to Thomson Reuters.
Gold which is said to be used as a safe haven during times of geopolitical uncertainty, is not the most attractive financial instrument and is somewhat dampened at the moment. It could be said that, market participants are now turning towards U.S. Treasuries which are also interest rate related and are viewed as a gain opportunity for the coming months. It is believed that Gold will remain on the selling trend until there is a distinct reverse of the current sentiment for the US dollar.
Most notably, a recent study showed total demand for gold has been down as it fell 7 percent in the first quarter of 2018 compared to last year. Analysts site a drop in private investment demand which consequently, hurt gold prices significantly. However, some central banks and primarily those of gold backed deposits have increase their holdings in bullion, indicating a long term faith in the precious metal. More specifically, Turkey as well as Russia are 2 very good examples of countries with central banks that have gradually increased their holding in gold and have decreased their US related investments. Investors have traditionally been purchasing gold in order to protect their interest over certain economic conditions. The most rational reason could be named as higher inflation which automatically motivates utilization of the shiny metal.
As a conclusion, we strongly believe investor’s interest in gold has been on the low for some time and the case for investors to have completely disregarded it as a safe heaven is very evident lately. This negative outlook could reverse once market participants see the shiny metal start to appreciate. We would like to warn traders to be on the watch out, as we have seen huge financial institutions making unrealistic forecasts and deceiving the market in general. Investors should make their own decisions on Golds direction.