Gold Prices Retreat from Record Highs Amid Decreased Chinese Demand and Increased Speculative Bets
Monday, 8/19/2024 15:55
GOLD PRICES have eased from an all-time high above $2,500 as speculators increased their net bullish positions in Comex futures and options to a four-year high, while demand in China, the No. 1 consumer nation, fell to a three-year low,
writes Atsuko Whitehouse at BullionVault.
Spot gold fell 0.6% to $2493 per ounce by midday in London, following a surge to a new record high of $2509 on Friday.
"Gold has been chasing the psychological $2500 level for several months, and now that it has been reached, we are seeing some natural profit-taking occur," said
an analyst to Reuters.
Before gold reached its peak last week, data indicated that hedge funds and other leveraged speculators in Comex gold futures and options increased their bullish bets on gold by 14%, reaching their highest level in over four years by the week ending August 13. Simultaneously, they reduced their bearish bets by 27%, bringing them to the lowest level in seven weeks.
This shift pushed the net long position of Managed Money traders to nearly the highest level since March 2020, when the first wave of the COVID-19 crisis caused bullion prices to drop before they eventually climbed to a then-record high.
The net bullish positions were 82% above than the 5-year average. The period includes the COVID-19 crisis in 2020, Russia’s invasion of Ukraine in February 2022, the US mini-banking crisis in March 2023, and the Israel-Hamas war following the Hamas-led attacks on Israel in October 2023.
“Gold's resilience highlights its appeal as a hedge against turmoil, supported by factors beyond just the timing and extent of US rate cuts,” said derivatives platform Saxo Bank's commodity strategist Ole Hansen.
The
market consensus for the US Federal Funds Rate by the end of 2024 is 4.4% as of Monday, indicating a further cut of almost 1% at three policy meetings this year from a 23-year high of 5.25%-5.50%.
“The tailwinds remain stronger than the headwinds for professional investors but the price-elastic markets in Asia have yet to reconcile themselves to higher price ranges and this will take some of the gloss off the market,” said Rhona O'Connell at brokerage Stone X Group Inc.
Gold prices on the Shanghai Gold Exchange, meanwhile, turned to a discount compared to London today, marking the biggest discount in over three years at $9 per ounce. This follows a drop in the weekly average premium to $2 last week in the metal’s No. 1 consumer market.
Chinese central bank
issued new gold import quotas in August, after a two-month pause, as reported by Reuters on Monday. The People’s Bank of China had
curbed its bullion imports as prices of the yellow metal hit all-time highs in yuan in 2023.
This pushed the historical premium from $8 to over $30 since then. Additionally,
private gold demand surged in April to nearly 1% of the world’s second-largest economy’s gross domestic product (GDP). This occurred against the backdrop of China’s property market continuing to decline, its stock market reaching 5-year lows, and cash interest rates remaining at historic lows.
Gold priced in UK pounds and euros,
meanwhile, fell by 0.8% from Friday's highest close of £1,937 and €2,274 per ounce, reducing last week's gains of 1.7% and 2.1%, respectively.
European stocks rose as the pan-European Stoxx 600 index gained ground after marking its best week since May, following a recovery in global stock markets from
the turmoil experienced on August 5.
Strong economic data from the US helped alleviate concerns about a recession in the world's largest economy.
Defence firms in the region, including Rheinmetall AG, tumbled on Monday following a report that Germany will no longer grant new requests for aid to Ukraine, as the government sought to control its spending.
The Dollar Index—a measure of the US currency's value against its major peers—extended its losses for the second consecutive day to the lowest level this year, while US bond yields edged lower following dovish comments from Federal Reserve officials.
Federal Reserve Bank of Chicago President Austan Goolsbee, a non-voting member of the Federal Open Market Committee (FOMC) in 2024,
advised against keeping restrictive policies longer than needed despite strong GDP growth. Meanwhile, San Francisco Fed President Mary Daly, a voting FOMC member, expressed
confidence in inflation control and suggested considering adjustments to borrowing costs from their current range of 5.25% - 5.5% range, ahead of the Jackson Hole central bankers' gathering.
Federal Reserve Chair Jerome Powell is scheduled to deliver remarks on the economic outlook on Friday at the Jackson Hole Economic Symposium hosted by the Federal Reserve Bank of Kansas City.
Prices for silver, which is primarily an industrial metal with nearly 60% of its annual demand coming from industrial uses, fell 0.6% to $28.89 per ounce, reversing its 5.8% advance from last week.
Oil prices eased on Monday as investors focused on the progress of ceasefire talks in the Middle East. US Secretary of State Antony Blinken began critical discussions with senior Israeli officials, aiming to advocate for a ceasefire in Gaza and prevent regional escalation, which he described as "perhaps the last opportunity".
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