Gold stands corrected

A long, unchecked rally had driven gold prices to new record highs week after week and, most recently, even day after day. The first price adjustments were predictable, as experience has shown that sustained sharp price increases often lead to severe setbacks at some point, with investors flocking to exit their positions simultaneously.

In this sense, periodic price corrections can be regarded as a cleansing phase for short-term and more speculative investors to take profits and re-balance the market from its one-sided positions.

Profit-taking ends price Rally

In the precious metals markets, and especially in gold, many short-term investors and bandwagoners jumped on the buying trend in recent days, as prices seemed to be rising inexorably. However, Friday evening, and especially yesterday (Tuesday), saw massive profit-taking, which sent prices tumbling. Further reasons for the short-term setback:

• The financial markets are increasingly convinced that the planned meeting between US President Trump and Chinese President Xi will lead to a solution in the trade conflict between the two countries, which is why “safe haven” positions in gold have been dissolved.
• Gold and silver had benefited greatly from rising demand from India in the run-up to Diwali. In September, India’s gold imports from Switzerland increased by 97 percent to 30 tons compared to the previous month.
• Due to the government shutdown, no data on the current positioning of investors on the futures exchanges is being published in the US. The latest available data from the end of September indicated high buying activity among speculative market participants, which most likely has further increased. These positions are often short-term and therefore subject to swift profit-taking.

Gold continues to trade above 4,000 US$ per ounce

While gold prices stood at 4,232 US$ per ounce last Thursday morning, they initially continued to rise to just under 4,380 in Asian trading on Friday, immediately followed by the first setback to 4,186. On Monday, the yellow metal resumed its rally and climbed to a new all-time high of 4,381.50. Tuesday saw a sharp correction, causing gold prices to drop to 4,005 this Wednesday morning. The 4,000 mark was, however, defended and, at the time of writing this report on Wednesday morning at 9:00, gold prices are hovering around 4,130 US$ per ounce.

Xetra-Gold: a week marked by high volatility

The Xetra-Gold price rose from 116.70 € per gram last Thursday morning to a record high of 119.75 on Friday morning. After falling back to 116 on Friday, it marked a new high of around 120.05 at the close of trading on Monday. Yesterday, Xetra-Gold dropped to 113.40 and this morning (Wednesday), it is expected to start trading at around 114.80 € per gram.

As “feared” last week, the gold market was recently overbought in the short term. The current correction could thus be healthy for the market in the medium to long term. Friday will see the release of data on US consumer prices for September, with the potential of causing a stronger market reaction if it deviates significantly from expectations.

I wish all readers a relaxing weekend – and don’t forget to set your clocks back.