Gold prices continue to drop in wake of overall weakness in commodities

Last week already indicated what would become reality this week. Commodities were subject to a small sell-out for two main reasons.

On the one hand, a number of currencies of commodity-producing or -demanding countries continue to be under strong pressure against the US dollar. In the wake of the dramatic weakening of the Turkish lira last Friday and Monday, currencies such as the Indian rupee, the South African rand, the Australian dollar and the Chinese yuan also fell to new cyclical lows. This makes gold, which is quoted in US dollars on the world market, more expensive for consumers, while producers have incentives to sell more gold.

Economic worries cause investors to retreat from precious metals

On Wednesday night, economic data from China remained below expectations, which caused a sell-off in the markets for copper, platinum, palladium, silver, etc. due to increasing economic concerns; even the noblest of metals was unable to resist this downward trend.

Gold loses appeal as safe haven

I am, however, somewhat surprised that gold was not in greater demand this week as a safe haven. Even in Turkey, where the price of gold in lira has exploded in recent days, gold is said to have been sold (in exchange for lira) rather than being sought as a hedge against a further sale of the lira.

Finally, a new record of open short selling positions was achieved on the US futures exchanges. Major – and rather speculative – investors have obviously sold gold in expectation of being able to buy it back later at a cheaper price.

Gold in downward spiral in US dollar…

Hence, the past week has been unpleasant for gold prices, which have reached a level significantly below that of last Friday morning, when it traded for 1,208 $/ounce. During the course of the day, it had risen to 1,217 $/ounce but saw significant losses on Monday and crossed the 1,200 $/ounce mark, which in turn seems to have caused further sell-out activity among frustrated gold investors. By Thursday morning, the gold price hit a further low of 1,160 $/ounce before slightly recovering to 1,180 $/ounce. At the time this commentary was written, the trading price was 1,179 $/ounce.

…as well as euro

The euro/US dollar price has fallen to new 14-month lows, which in turn has served to slightly cushion the price decline of gold in euro. It did, of course, fall nonetheless. Last Friday, Xetra-Gold rose from 33.90 €/gram in the morning to 34.20€/gram in the afternoon, but has declined since and reached its weekly low this morning at 33.15 €/gram. The precious metal currently trades just slightly higher at 33.23 €/gram.

Trade conflict remains at centre of attention

Paradoxically, gold could now benefit if market uncertainty declines and the US dollar, currently considered the safest haven, should then lose value. Let's wait and see. Next week, the trade conflict between the US and China is likely to regain its position as the main focus across the markets.

I wish all our readers a happy and relaxing summer weekend.