Gold succumbs to bears

18 Apr, 2019

The global economy seems to have steadied ship and the jitters have given way to optimism by market participants. This seems to have made gold less glittery for a lot of investors and is probably the reason why the traditional safe-haven has taken a plunge in recent months.

The precious metal witnessed a high of $1327 per ounce in late February according to prices by OANDA. Gold prices rose for the first two months in this calendar year due to nervous shocks across the global front. These included the trade tension between the US and China which in turn led to an equity rout with the S&P 500 falling drastically in a matter of days.

However, calm seems to have taken over global investors following positive updates on US China trade negotiations with consensus seeming to develop between the two countries. The S&P 500 has also staged a major comeback and is now almost near its previous high of 2930 in Sep-18.

The other important factor behind the decline in gold prices is the US Federal Reserve’s dovish stance and a delay an interest rate hike in view of the stabilising economy coupled with resurgent equities. This has calmed investor fears of another rate hike anytime soon and led a fresh round of investing equities and foregoing safe haven assets such as gold. Gold prices have broken the resistance at $1300 which potentially signals more downside for the commodity. Yesterday’s close of $1276 meant a near three month low.

Things have also started improving on the China front. Recall that last year saw the world’s second largest economy witness its slowest GDP growth in more than two decades while equities took a sharp plunge on the back of trade tensions with the US. But optimism has renewed with many lowering their expectations of major trouble for the Chinese economy. All of this means more stability for investors and could prolong the bearish outlook on precious metals especially gold.

Copyright Business Recorder, 2019

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