Gold needs a bigger trigger than trade wars to find its lost charm

  • Gold has lost out to the dollar in being a safe haven. It has fallen almost 5% from its Feb high of $1,340.96/oz
  • For now, despite the bleak global economic outlook, the odds don’t seem to favour the precious metal

Against the backdrop of the ongoing global economic worries and trade wars, one would have expected investors to take refuge in the so-called safe-haven asset, gold. However, this has not happened. Gold has posted marginally negative returns in dollar and rupee terms so far this calendar year. Spot gold prices are currently at $1,276.28 per ounce (oz).

Prices of the precious metal have already factored in these concerns and it would take a lot more for them to see a meaningful spike, say analysts.

“We feel that gold prices will need a bigger trigger than US-China trade conflicts to decisively rise from current levels. Most concerns relating to global growth or US-China trade war are already priced in. For gold to regain its safe-haven tag, many things have to fall out of place," said Debajit Saha, senior precious metals analyst at Thomson Reuters GFMS in India.

“Demand in key gold consumer China is also subdued. For India, we have seen some uptick in the first quarter of the year, but there is a base-effect there. Gold backed exchange traded fund (ETF) buying is also not taking place. Gold prices are likely to remain range-bound in the near-term. On the upper hand, it will be challenging for gold prices to breach the $1,310/oz mark," he said.

Holdings in global gold-backed ETFs and similar products fell across all regions by 57 tonnes to 2,424 tonnes in April, according to the latest report of the World Gold Council (WGC). This is equivalent to outflows worth $2.2 billion. On a year-to-date basis, gold held by such ETFs has fallen by $377million.

“Asia lost 4% of assets, mainly from Chinese funds where local investors appear to be shifting assets away from gold, taking profits in local terms and moving money into local stock markets, which rallied over 25% during the first quarter," WGC said in a report on 7 May. No wonder then gold price has fallen almost 5% from its February 2019 peak of $1,340.96/oz.

Gold has also lost out to the dollar in being a safe haven. “The near-term outlook on gold is bearish because the major beneficiary of heightened trade tensions has been the greenback. Investors are seeking safety in the US dollar instead of gold," said Sugandha Sachdeva, vice president at Religare Commodities Ltd.

For now, despite the bleak global economic outlook, the odds don’t seem to favour the precious metal.

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