Taal selectie

Gold
and
goldmines

A geopolitical insurance

Central bank buying (mostly in emerging markets) of substantial quantities of gold and surging investor inflows into gold ETFs, on the back of political instability and negative interest rates, have been the main drivers of the yellow metal’s substantial appreciation year-to-date.

goldGraph(Source : Bloomberg)

From USD 1,282 /ounce at the onset of 2019, gold proceeded to gain ca. 10% and reach USD 1,410 by the end of June – breaking through the USD 1,350 resistance that had held for the past five years. This triggered additional speculative buying (from hedge funds) via derivative contracts that now total more than 35 million ounces (a historical high), many of which have a strike price of USD 1,500. As such, if the gold price exceeds this level, speculators will be tempted to sell and take their profits.

This speculative buying then pushed the price of gold further upwards to USD 1,523 on August 15 (a year-to-date gain of nearly 20%) – after which the aforementioned profit taking began, resulting in a pullback towards the USD 1,500 level.

Considering the 35 million ounces overhang, it is highly unlikely that the price of gold can move much higher in the short term. On the contrary, if speculators lose their nerve and begin to sell in earnest, a sharp correction (towards USD 1,350) is not unrealistic.

Moreover, buying of bullion and jewellery by Chinese and Indian private investors (the major buyers of physical gold) has virtually come to a standstill at the current price level as they are also suffering from the weakening of their home currency…

Update : August 2019

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