The Strategist

Analysts: Gold prices are going down

03/05/2019 - 11:14

International investors are rapidly reducing investment in defensive assets. The total assets of the funds investing in gold have updated a month and a half minimum, dropping below 2.24 thousand tons. Hopes for the conclusion of a trade agreement between the US and China, as well as the increased risks of a new hike in the US Federal Reserve rate, are forcing investors to reduce investments in the precious metal.

The assets of exchange-traded index funds investing in gold have updated a month and a half minimum. According to the latest data from Bloomberg and results of Friday's trading, they decreased by 11 tons, to 2,240 tons. This is the lowest value since January 17th. Assets of the funds have been steadily declining for the fifth week in a row, and during this time they have decreased by 41 tons. The decline in interest in the precious metal by professional investors had a negative impact on its value. On March 4, the price of gold fell to its lowest level since January 25 - $ 1,282.5 per ounce, which is 0.8% lower than the Friday close.

International investors are reducing investments in the precious metal amid news that China and the United States are in the final stages of preparing a trade agreement.

According to The Wall Street Journal, Beijing is proposing to lower duties and remove other restrictions on American goods, and Washington is considering lifting the majority, if not all, of sanctions imposed on Chinese products from last year. According to sources of the publication, the final document will be signed at the meeting of the leaders of the two countries on March 27.

Increased concerns about the growth of interest rates in the USA also contributed to a decline in investor interest in gold. Last week, the Commerce Department released the fourth-quarter US GDP data, which surpassed analysts' expectations. According to the ministry, the US economy grew by 2.6% in annual terms at the end of last year, while economists surveyed by Bloomberg, were waiting for growth of only 2.2%. In addition, business activity indices are above 50 points, which indicates positive business expectations.

“The US dollar will remain strong in the coming months. This partly reflects weakness of other currencies and will cause additional volatility. Apart from these short-term negative factors, gold prices are in a phase of long-term growth, which will resume as soon as the US dollar stops going up,” says Carsten Menke, a commodity strategist at Julius Baer. According to him, an important factor in the growth of metal prices will be restoration of demand for “safe haven” assets against the background of growing risks of slowing the global economy in the beginning of the next decade, which will be in the third stage of growth. “It may turn out to be longer than previously expected if Chinese investors return to this market, which will be a noticeable stimulus for the growth of quotations,” concluded Mr. Menke.


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