Why Did Gold Prices Slip From The $1300 Mark?

Why Did Gold Prices Slip From The $1300 Mark?

Gold prices slipped, with COMEX Gold Futures declining from the level of $1349.80 (which marked the day’s high of 20th February 2019) and currently hovering around $1289 amid developing resolution in ongoing trade talks between the two major economies. The disparage in the long-standing trade dispute between U.S and China is building optimism among the market participants over the betterment in the global economy.

The high optimism among investors is pulling global indices up and marking a higher rate of return, as compared to the return on non-interest-bearing asset gold, and thus, in turn exerting pressure on gold prices. Another factor dragging gold prices down is the rise in the dollar index.

The dollar index rose from the level of 95.715 (which marked the day’s low on 28th February 2019) to 96.748 (which marked the day’s high on 4th March) after a correction from its three-week high of 97.230. The rising dollar prices make it hard for investors to hold the dollar-denominated non-interest-bearing gold for price appreciation.

The rising return from other asset class exerted pressure on gold price, and it slipped from the level of $1300, which marks a psychological level for the market as well.

In the wake of improving relations between the U.S and China, the bond market also reacted sharply and exerted the pressure on gold prices. The U.S-10-year yield to maturity (market discount rate) rose from the level of 2.628% (which marked the day’s low on 27th February 2019) to 2.770% (day’s high of 3rd March 2019).

The rise in market discount rate or yield-to-maturity marked a fall in bond prices, as investors turned optimistic over the return from other asset class (bond prices moves inversely proportional to the market discount rate), which in turn exerted the pressure on gold prices as well.

In the present Status Quo, the U.S. President Donald Trump asked the Chinese counterpart to remove the increased tariff on U.S. Agriculture products, which also marked the improvement in the relationship between the two long disputing major economies. The development, in turn, provided an impetus to the global indices.

The rise in the rate of return provided by other asset class shifts investors towards those markets and in turn, marks a cash outflow from the bullion market, and thus, creates a selling pressure in the commodity.

The improvement in denuclearization talks between U.S-North Korea is also exerting the pressure on gold prices, as gold rises in the environment of uncertainty, the development in the relation is exerting the pressure on gold prices.

Technical Outlook:

Source: Thomson Reuters: COMEX Gold Daily ChartSource: Thomson Reuters: COMEX Gold Daily Chart

Following the development on daily charts, the commodity price broke an upward sloping trendline and is making a dead cross with 7days exponential moving average (small-Red) crossing the 20 days exponential moving average (larger-yellow) from above. The Relative Strength Index (14) is well trending below the mean value of 50, which is marking a selling pressure on the commodity.

However, the scenario needs to be monitored given the jumps we see in prices post any macro related event.


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