Gold prices plunged in the international market with COMEX Gold futures falling from its recent high of $1304 (day’s high on 10th April 2019) to the current level of $1290. Gold prices previously fell over the fear of a rise in future interest rate by the U.S. Federal Reserve if global economic conditions revive from its current slowdown. Another factor which contributed to the fall in gold prices was the improving economic figures from China. China’s trade and credit improved significantly, which in turn, exerted pressure on gold prices.
As per the data, the trade balance of China denoted a surplus of 32.6B for March 2019, against the market expectation of 7.7B and 4.1B for the previous month. The market participants were expecting a little improvement in China’s trade balance amid building resolution between the two significant economies of the globe. However, the considerable improvement jolted the bullion investors over the substantial improvement in trade terms, which in turn, exerted pressure on gold prices.
The improvement in the trade balance marked a positive impact of ongoing trade talks between the United States and China to end the long disputing bilateral trade disagreement between them, which signified the developing relationship between the two countries and created optimism among global equity investors. The improved optimism among these investors supported the global equity indices and marked a high rate of return as compared to non-interest-bearing gold. The high return expectation along with the bullish equity market exerted the pressure on gold prices.
In the recent IMF meeting held on 12th April 2019, Mr. Mnuchin (U.S. Treasury Secretary) mentioned that there are certain commitments made by both the parties and both counterparts have agreed on an enforcement mechanism to legalise any trade deal both the peers agree in the future. Mr. Mnuchin mentioned that the enforcement would help both the counterparts to honour the agreement and if any party deviates from it, it will not be without certain repercussions.
The development between the U.S. and China generated fear among market participants, and the prices plunged till $1290, previously.
Apart from the improvement in trade policies and its impact, the money supply in China also eased up, which signifies an improvement in the domestic conditions of the economy, which in turn, exerted pressure on gold prices.
As per the data, M2 Money supply for March 2019 was 8.6%, higher as compared to the market expectation of 8.2%. The higher money supply eventually leads to higher spending and investment, which in turn, provides impetus to the economy. The higher money supply in China’s domestic market signified betterment in the economic condition of the county, which further exerted pressure on gold prices.
The Gold Miners on the Australian Stock Exchange (ASX) reacted quickly to the diving gold prices and Saracen Mineral Holdings (ASX: SAR) and Evolution Mining Limited (ASX: EVN) plunged significantly during the day session and ended among the top five losers on ASX for the day.
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