Investors instead liquidated gold holdings, the most liquid alternate available to currency, to cover up for losses in other risk assets which were falling amid the concerns of tariff disputes, says Sugandha Sachdeva of Religare Broking.
Gold seemed to have lost its charm in the last quarter as it plunged almost 3.5 percent this June and closed the financial quarter with nearly 5.50 percent drop. Today, traders are shying away from the yellow metal which is now hovering near December 2017 lows.
Thanks to the rupee’s depreciation towards record lows of 69 against the dollar, there has been some respite in domestic prices.
Typically seen as a safe haven during times of geopolitical and economic uncertainty, gold has made an unsuccessful attempt to protect investors from the recent trade disputes between the world’s major economies, an outcome of Trump’s protectionist policies.
This is arguably the most confusing state where investors find themselves trapped.
Even as the return of the trade spat between the US and China has been the focal point of markets this week, the US President went ahead and threatened to institute new measures on another trading partner, by imposing 20 percent tariff on all US imports of European Union-assembled cars as it is worried about the increasing auto sector trade deficit.
Amid uncertainties, the precious metal itself had a bitter experience which is contradictory to its natural movement in such an environment.
Investors instead liquidated gold holdings, the most liquid alternate available to currency, to cover up for losses in other risk assets which were falling amid the concerns of tariff disputes.
Another factor has been gold’s close correlation with the dollar, which is riding fast to approach one-year highs against a basket of major currencies, has proven to be a spoiler for gold prices.
It is the Fed’s recent hawkish stance on interest rates which has fueled strong buying interest in the dollar, leading to soft gold prices.
On the speculative and investment front, speculative long positions have reduced significantly recently as also the holdings of SPDR Gold Trust, the world’s largest gold-backed ETF. It has witnessed outflows of almost 3 percent for June.
Recent developments have failed to garner interest in the precious metal and how the ongoing trade conflict will take shape on the macro level is anybody’s guess.
However, the demand for gold in India, one of the world’s largest consumers, is expected to improve following a normal monsoon. For the next couple of weeks, gold prices may witness high volatility due to multiple events lined up in July.
Market participants would be looking forward to the US jobs data in the next week. Later, the US President Donald Trump and Russian President Vladimir Putin will meet for their first summit on July 16, and also the FOMC meeting towards the end of the month would be on the radar of investors.
While having a sight on the price chart, the directional movement looks weak and prices seem not in a hurry to change their overall course. The yellow metal has breached the crucial support of Rs 30,800 per 10 gms mark and trading significantly lower. However, the entire picture of prices is not shady.
There is a firm support in sight at Rs 30,250-30,300 per 10 gms mark ($1,235-1,240 per ounce) and prices can see a bounce back from these levels. On the higher side, Rs 30,850-900/10gms level ($1,280 per ounce) would again offer supply pressure.
The equivocal nature of recent fundamentals and price structure of technical charts suggest the above-mentioned trading range until the metal finds a decisive direction going forward.
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