Over the last 3 months, gold prices averaged $1501 per ounce, a rise of 24.6% from the August-October period last year.
Gold possesses a unique set of defensive characteristics, which shine when uncertainty rises in the market. It has had a fantastic run this year, with bullion up 17 %.
Gold steadies after posting the biggest loss in more than a month as investors weighed the strength of the global economy and prospects for a U.S.-China trade deal.
The recent pull-back has provided perhaps another opportunity to get in on what may very well be a multi-year run. After a short rest, the gold bull appears poised to take its next step higher.
Gold has been shining brightly over the past 3 quarters and there were many important drivers behind this rally in prices especially in the month of September and October-
- U.S. trade with China nosedived in September after President Donald Trump escalated the trade war with fresh tariffs on consumer items, deepening a slump for exporters on both sides of the Pacific. This trade dispute escalated gold prices.
- U.S. job openings unexpectedly slumped in September to the lowest level in a year and a half on broad declines across industries, another sign of moderating yet still-strong hiring. Weak numbers coming in from the US increased gold’s safe-haven appeal
- A wave of interest-rate cuts by central banks including the Federal Reserve and mounting hopes of a U.S.-China trade deal maintained confidence in financial markets just as key economic indicators show signs of stabilization after recent declines. However, lack of clarity and delay in trade talks resulted in increased uncertainties which further pushed gold prices high.
- ETF holdings backed by gold are at the highest since 2013 after posting a modest rise last week. The stockpile has risen every week since August, apart from a single weekly drop in September. Central banks have also been increasing the amount of gold in their portfolios. Increased demand has always been a great support for gold prices.
- While demand is important for rising gold prices we also need to keep a check on its supply side. The supply side of the equation is equally important. The gold industry already had its boom in the 1970s and 1980s. Abundant capital poured into the industry, new mines were discovered, and global production ramped up; but now production growth is slowing as these older mines are gradually depleting. The business of exploring for gold has also become much more difficult compared to the 80s amid stiffer environmental regulations, and safety and labor concerns.
- Global bullion holdings continued to rise in the third quarter of this year, with net purchases up 12 percent compared to last year, according to the World Gold Council (WGC) data.
- Central bank purchases of the precious metal totaled 547.5 tons, with more than 156 tons bought in three months from July to September. However, the third quarter buying spree this year is 38% lower than it was in 2018 when quarterly net purchases hit the highest level in eight years
Future Drivers for gold-
- Weakness in the U.S. dollar, which is historically expensive versus most major currencies, would be positive for gold prices. Gold is a real asset quoted in U.S. dollars, so a weaker dollar equals a higher gold price. Secondly, total known exchange-traded holdings of the metal have steadily risen
- Believe the rise in popularity of cryptocurrencies in the past few years siphoned off some of the gold bugs. Now that cryptos have crashed back down, we think many are coming back to the yellow metal.
- Thirdly, central bank demand – particularly on an international basis – remains robust.
Investors continue to add gold in their portfolio and their motivations vary but one trend appears to be the desire to better diversify their reserves.
In Prithviraj Kothari’s opinion, Gold market exposure continues to offer fair value and a good cynical vehicle in concurrence with traditional bonds and other defensive holdings in its class.
Summing it up, emphatic noises from various corners right from Trumps’ stand on China deal, meeting Kim, and of course, global fund managers turning bullish on Armco and crude surging for that reason. Overall the strong pinning for the US economic data and China also delivering slightly better shows on the whole. The same is reflected in Asian market sentiments.
The USD index surged half a percent, pushing gold towards supports and final support near $1505- $1507. Traders can put a stop below $1499 and can play twice the rewards i.e. 1515-1518.7