Gold downtrend bound to continue
Gold is expected to slide further south this quarter; the firming US dollar and the strengthening negative correlation between gold and the USD will exert downside pressure to the precious metal.
Gold touched a more than a month low at $1280.20 on August 1, and analysts believe its downtrend is poised to continue in the coming months. The recent USD firmness and the strengthening negative correlation between bullion and the dollar are factors which will probably continue to push gold prices lower in the middle-term.
The economic picture for the US has emerged in bright lights, a strong GDP figure and the recent uptick in inflation being some of the factors behind the upbeat situation. The strength underlying the American economy is likely to set the Fed in a position to hike interest rates sooner than previously anticipated, perhaps at some point in mid 2015, which curbs the precious metal’s value.
In India smuggling is unleashed, boosted by import restrictions. According to the latest reports, gold smuggling is going on via special economic zones. But the recent premium quotes have only been $5/oz. The demand for gold in China is declining. For the whole of Asia, recent data on bar premiums are indicative of steady or tapering demand.
For the 2014 period up until now, there has been a slowdown of gold ETF outflows, pointed at mere 51 tonnes. In the past week, inflows were observed of 0.6 tonnes, so that month-to-date flows barely approached a net inflow. Compared to last year, current investor demand is stronger, but that should by no means be confused for a long-term shift in investors’ sentiment.
As for retail demand, judging by sales of gold coins by the US mint, the demand is much lower, down by almost 50% on a monthly and yearly basis.
