WallStreetBets: Gold prices rotate lower as trading volume soars

Written by: Michael Harris
January 29, 2021
  • Gold prices have reversed their course yesterday to close lower on the day
  • The gold market saw the highest volume yesterday in the past two weeks as hedge funds adjusted their portfolio
  • A break below $1,830 an ounce opens the door for a quick trip to $1,800 an ounce

Gold prices have dropped more than 1% yesterday afternoon as volatile trading on Wall Street continues amid the ‘Wallstreetbets’ frenzy.

Fundamental analysis: Fundamentals take the back seat

In times like this, the fundamental data and reports are less relevant. A report published by The World Gold Council (WGC), that said it expects India’s gold consumption to recover this year after hitting the lowest mark in 26 years in 2020 as a result of boosted sales, is less relevant these days as the investing community has its eyes on the WSB saga. 

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In a more normal trading environment, gold traders would use this report as a bullish catalyst. WGC said increased gold purchases by India could back the bullion’s prices, which surged to a record high last year, however, it could also increase the country’s trade deficit and weigh on the struggling rupee.

Coronavirus-induced lockdown restrictions weighed on India’s gold demand, which fell by 35% in 2020 to 446.4 tonnes, the lowest level since 1994, the WGC said in a new report.

But the council said it expects the demand to rebound this year close to levels seen in 2019 as economic recovery is also expected to increase, thanks to a drop in coronavirus infections, said Somasundaram PR, the managing director of the WGC India.

India’s economy is expected to advance 11.5% in 2021, according to the International Monetary Fund.

“As lockdowns eased and normalisation efforts were phased in, imports in the December quarter rose 19% year-on-year, pointing to the positive impact of pent-up demand. This can be expected to continue into 2021,” Somasundaram said.

India imported 164.4 tonnes of gold in December, the highest in 6 quarters, driven by a surge in demand during the key Hindu festivals of Dussehra and Diwali, the WGC added.

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Technical analysis: Volume soars

As the precious metals market is extremely liquid, it is more difficult to make bigger moves. It is estimated that the market capitalization of the gold market exceeds $10 trillion. 

Gold daily chart (TradingView)

Gold prices have reversed their course yesterday to close lower on the day. Looking at the volume, the gold market saw the highest volume yesterday in the past two weeks as hedge funds adjusted their portfolios to reflect the latest surge in volatility.

Gold prices are now trading below the resistance zone around $1,850 an ounce. A break below $1,830 an ounce opens the door for a quick trip to $1,800 an ounce.

Summary

The World Gold Council (WGC) issued a new report where it said it estimates India’s gold consumption to rebound this year after plummeting to a 26-year low in 2020.