- Gold prices under pressure from rising risk-on appetite
- Physical gold is suffering from low imports by India and China and potential recycling supply
- Vaccine hopes are fanning financial markets higher
June gold futures closed Tuesday lower by 1.7% at $1705.60 an ounce. A confluence of factors forced gold traders to assume a bearish view on gold. Higher supplies from mines and scrap, vaccine development, and a rising stock market combined to weaken gold bulls’ resolve.
Gold is facing bearish developments
According to SFA (Oxford) analysts, a surge in recycling volume is likely to swamp the bullion market as lockdown restrictions ease. Gold mines coming back online may also add to supply worries.
The market is also noticing that gold imports into India have fallen off a cliff, with a decline reported for the fifth consecutive month during April. Unbelievably, China turned on its heel and became a net exporter of gold last month – the first time this has happened since 2011.
Meanwhile central banks have put a brake on gold purchases as stimulus concerns dominate.
Gold – macroeconomic concerns
Moving on from the physical aspects to macro, it is significant that gold did not move a muscle in the face of Tuesday’s reading of 86.6 for the Consumer Confidence Index, which was lower than expectations of 87.1. According to Lynn Franco, senior director of economic indicators at The Conference Board, consumers are still apprehensive about a recession and the second wave of COVID infections.
However, risk sentiment has improved as more countries take steps to reopen their economies, leading to gains in the stock market. This generally pressures gold prices.
Meanwhile, investors are clinging to hopes of the early development of a vaccine to combat the virus. Reputed pharma companies such as Novavax, Inc. (NASDAQ: NVAX), and Merck & Co., Inc. (NYSE: MRK), have thrown their hat in the ring to develop a COVID vaccine. Again Trump and Xi are head-to-head in the race to develop a vaccine and gain global acclaim.
This is also working against gold.
What’s working in favor of gold
Tensions between China and the U.S. relating to COVID, tariffs, Hong Kong, and currencies are likely to exacerbate risks for the financial markets and boost the haven appeal for gold.
Inflows into gold ETFs continue apace and SPDR Gold Trust holdings rose 0.4% to 1,116.71 tonnes on Friday.
Investors may be clutching at near-term optimistic straws, and losing sight of the longer-term overhangs such as vast global stimulus and debasement of purchasing power.
Increasingly, gold bulls appear to be losing their grip on the precious metal, and the critical and psychological level of $1,700 may likely be broken soon.