Profit-taking

It was bound to happen sooner or later, comparable perhaps to attempting to climb a mountain peak without sufficient acclimatization. Following the horrendous gains since the end of August and the daily new record highs, gold prices have somewhat run out of steam. We saw intensified profit-taking earlier this week. Investors will likely have cashed in mainly on the US futures markets, but US ETCs have also recorded strong outflows for the first time in several weeks.

Gold price rally hits pause

As discussed in earlier market reports, it is probably healthier for a market when a price movement that has long looked like a one-way street upwards takes a break, players who entered the market in the short term exit with their profits, and the ensuing correction phase gives market participants some breathing space to think about the pros and cons of further price increases. Long-term investors likely have remained in the market, and new ones will perhaps enter.

Reasons for the price correction

The fundamental reasons for the robust setback of the gold price (and even more so in silver): primarily, speculative market players were simply too one-sidedly positioned on the buy side. In addition, as mentioned last week, India celebrated Diwali, which is always accompanied by a hike in gold demand from India and naturally recedes after the festival. Finally, many investors are likely to enter the US stock markets, which are rushing from record to record.

Gold drops below 4,000 US$ per ounce

While gold traded at 4,130 US$ per ounce last Wednesday morning, it initially continued to rise to just under 4,160 before closing at around 4,115 at the end of the week. On Monday, the precious metal dropped back below the 4,000 US$ per ounce mark and continued on this downward trajectory yesterday, Tuesday, to 3,886. By yesterday’s closing bell, gold had recovered to 3,955 and stood at 3,996 US$ per ounce this morning (Wednesday) at around 8:00 CET.

Xetra-Gold also down week on week

The Xetra-Gold price also suffered a setback, dropping from 114.80 € per gram last Wednesday morning to 111.00 on Thursday. On Friday, it climbed back up to 115.00 before hitting reverse at the beginning of the week, reaching its lowest point on Tuesday at 107.25. After recovering to 109.05 at the close of trading, Xetra-Gold was expected to kick off trading in Frankfurt at around 110.40 € per gram this morning.

Various central bank meetings are on this week’s agenda. They are unlikely to have a significant impact on the markets as the decisions should already be priced in. For gold, the question now is whether the correction phase could already be nearing its end or whether there is more to come. 

I will be away on holiday and will be back with the next market report in mid-November.

Until then, I wish all readers successful trading.