Is Gold’s depreciation an opportunity or a warning?

Gold prices stabilized and moved marginally higher on Friday, however the big picture indicates the precious metal posted a 2.9% weekly retreat, the biggest drop since May of last year. This upward trend was followed today, Monday the 20th with the shiny metal still holding up amid easing trade tensions between US and China.

Analysts also cited the precious metal edged up due to a weakened US dollar confirmed by the leading dollar index also moving in red area. The buck, which was currently down slightly for the week but up 4.5% year to date, and is a major influence for the precious metal’s value.

Gold, a so called safe heaven currently trades near a 10% low compared to last year and was not successful to rise on geopolitical turmoil around trade-war worries and Turkey’s financial crisis, as focus remains almost exclusively pinned on the stronger dollar. All fundamental news, regarding the US dollar affects the metal, and in general most news state the US economy is on a winning streak and so the shiny metal has paid the price with a downward trend for almost 4 months to date and a 19 month low.

On a more positive note, India a huge Gold consumer mostly due to its traditional rituals was seen picking up demand during the past week as gold prices dropped and attracted buyers. The fact helped boost Gold prices and could be noted as an exceptional event regarding the precious metal demand for last week.

On the flip side, according to Eikon Reuters, financial institutions and hedge fund managers intensified their selling positions in COMEX gold contracts for the sixth consecutive week. This was included in a report released by the U.S. Commodity Futures Trading Commission on Friday. Traders added 13,991 contracts to their bid positions, totaling 77,273 contracts, overcrowding the selling side of the precious metal. The data indicated a record breaking gold short figure since 2006 when information became widely accessible.

The increase in short Gold positions was attributed to the downfall of the Turkish lira in the previous week. After the market witnessed a gap between the US and Turkey relationships, traders added value to the greenback which is preferred as an investment subject to appreciate. It must be noted the other precious metals like Silver were also oversold, adding selling contracts however Copper opposing the whole situation was seen decreasing the short positions.

In addition, most market participants expect Gold to persist its dropping in the current week. However, studying the history of financial markets, speculators can be incorrect big time giving the opportunity to only a handful of people to profit by betting on the opposite side. Gold has lost over 150 USD in value since April and nothing is guaranteed if the US dollar continues to win the battle against its major counterparts.

Gold regained some strength in the latest sessions and broke our previous 1,180 resistance line which has now turned to support. Should the upward movement continue we could see the shiny metal breaking the 1,192 resistance line opening the way for the 1,200 psychological threshold and
stabilize over it. If the round number is breached we could see Gold move even higher. On the other hand, should the bears overtake the precious metal, we could see it breaking once again the 1,180 support line aiming for the 1,170 support barrier.

Gold caught in a downfall

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.

When the bears of Gold are roaring

Gold’s down slide continues drastically in the current week, with the precious metal being oversold, drifting away from markets interest due to various reasons.

Gold prices dropped to six-month low on Thursday, forced down by a continuous strengthening dollar and by comments from the U.S. Federal Reserve Chair confirming additional interest rate hikes in the United States. Moreover, rate hikes are a not so pleasant event for Golds price, as investor’s attention could turn to more interest rate related assets that have more reaction and subsequently more potential for gains. Solid evidence is the obvious strengthening of the greenback against other major counterparts which make the bullion very expensive for the rest of the world with the resulting in major dampening.

In the meantime, the latest advancements on the trade war between the United States and China is affecting business confidence and could force central banks to demote their outlooks. Despite that, Gold prices, which usually advance in times of uncertainty, had the opposite effect so far this week, regardless of the ongoing trade war.

On another front and according to reports, Russia has reduced its investments in US Treasuries nearly by half in April 2018 but has very notably increase it’s holding in the Bullion.