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【TEJ Dictionary】Gold prices hit the longest losing streak in 40 years! What is the future of gold?

The decline in gold ETFs and futures will likely continue until the FED changes its policy direction.

Preface

According to DJI, gold futures closed lower on Monday (Oct. 31) and are now down for the seventh consecutive month, the longest streak of declines since 1982. Rising U.S. treasury rates and a stronger U.S. dollar continue to put pressure on gold prices, and the announcement by the FED after last Wednesday’s meeting that it will continue to raise interest rates sharply dealt another blow to gold prices. When will gold stop falling? How should investors plan their investment strategies now? This article will take you on a glimpse of the market.

Keywords: Gold、Future、FED、Interest

Highlight

📍Gold market
📍Future trends
📍Which countries are crucial?

Gold market

The unexpectedly strong U.S. economic growth in Q3 has investors wrestling with whether the FED will slow down interest rate hikes after December. A U.S. dollar rally caused gold futures to swing lower on Thursday (October 27), halting a two-day uptrend. By November, the COMEX (New York Mercantile Exchange) gold futures for December delivery had fallen $4.10 to $1,640.70 an ounce. According to Dow Jones Market Data, the most actively traded gold futures contract fell 1.9% in October, the seventh consecutive month of declines and the most prolonged decline since gold prices fell for seven straight months through March 1982.

▲ Gold Futures Price Trend (Source: MarketWatch)

Silver futures for December delivery fell 3 cents to $19.119 per ounce after a modest increase of 0.4 percent for the month. Palladium futures for December delivery fell about 3.5 percent to $65.50 to $1,831.70 per ounce, down 16.1 percent for the month, while platinum futures for January fell 1.73 percent, down $19 to $930.10 per ounce, but up 8.3 percent for the month. Copper futures for December delivery fell 5 cents, or 1.6 percent, to $3.375 per pound, down 1.1 percent sequentially.

The world’s largest gold ETF SPDR Gold Shares (GLD) reduced its gold holdings by 1.45 metric tons to 919.12 tons on the 2nd day, a record low since February 2020. The largest silver ETF, the iShares Silver Trust (SLV), saw its silver holdings fall by 2.87 metric tons to 15,029.72 metric tons. This shows that gold prices continue under pressure from the strong U.S. dollar and rising colonial interest rates. Gold has long been considered a financial commodity that holds its value better than currencies and stocks and is one of the investment options for people outside of stocks and bonds. However, this wave of gold price decline also means that gold’s anti-inflation ability has failed, especially in the face of rising interest rates and the soaring dollar. Inflation will eventually slow down, increasing actual interest rates, which is not conducive to gold price performance. Investors have begun to abandon gold for the bond market.

▲ SPDR Gold Shares

Future trends

Adrian Ash, head of research at BullionVault, an online bullion trading platform, told MarketWatch, “Gold remains under pressure from the U.S. dollar ahead of the Federal Reserve’s (rate hike) decision on Wednesday and the release of Friday’s non-farm payrolls data.” Bullion believes that gold prices are susceptible to the dollar’s strength and rising Treasury yields, which could weaken demand for the precious metal. The ICE U.S. Dollar Index (DXY), a measure of the dollar’s strength against a basket of currencies, rose 0.7% to 111.575 on Monday, while the 10-year U.S. Treasury yield rose two percentage points to 4.037%.

Fawad Razaqzada, a City Index and Forex.com market analyst, said investors are still skeptical that the Federal Reserve could shift to a dovish stance on Wednesday. The Federal Reserve will announce its latest interest rate decision on Wednesday afternoon, November 2. Razakzada said the market is almost particular that a 75 basis point increase is inevitable. Still, the market needs to buy the bill entirely. So if the FED were to announce a 75-basis point increase, it would run counter to the notion of those seeking a modest rate increase and, therefore, could cause stocks and gold prices to continue to fall. Razaqzada said that an announcement of a 50-basis point increase could have the opposite effect and that the market is now even more uncertain about what the Fed will offer in terms of future rate increases. Jerome Powell admits that at some point, rates will start to slow down but may end up being higher than expected initially. Gold will be in trouble as the dollar will likely continue its strong performance next month. Gold prices have been hovering at a critical support level, which, if broken, would represent intense and violent selling pressure.

▲ New York Gold Spot Prices

Investors are now looking to Wednesday’s two-day meeting for market signs to reinforce expectations that the FED will move to modest rate hikes after implementing its fourth 75-basis-point jump. The market should now look beyond the New Year 2023, expecting the FED’s policy to turn around at some point in the spring. Despite these headwinds, consumer demand looks well-positioned to absorb the outflow of funds from gold. For example, Diwali in India last week, followed by Christmas and the Chinese New Year, will boost demand for gold. However, suppose inflation continues to climb next year. If global economic growth falls into recession or geopolitical conflicts such as the Russia-Ukraine war or the Taiwan Strait crisis intensify, gold will remain a safe-haven investment option.

Which countries are crucial?

The World Gold Council (WGC) highlighted that Indian consumers have also recently boosted gold jewelry demand in the third quarter, with the overall market reaching 523 tonnes, a 10% increase from last year. Indian purchases alone are up 17% from the same period in 2021. Considering the demand of various countries, the need for gold in this quarter has increased by 28% compared with the same period last year (2021), reaching 1,181 tons. The demand for gold in September this year has also increased by 18% compared with 2021, returning to the pre-epidemic level.

According to a report by the China Gold Association, in the first three quarters of 2022, domestic raw gold production in mainland China was 269.987 tons, an increase of 33.235 tons or 14.04% compared with the same period in 2021. In addition, in the first three quarters of 2022, the imported raw materials produced 86.362 tons of gold, an increase of 9.70% over the same period last year.

If imported raw materials were added, the country produced a total of 356.349 tons of gold, an increase of 12.95% over the same period last year.

In the first three quarters of 2022, mainland gold consumption was 778.09 tons, down 4.36% from the same period in 2021. Among them, gold jewelry consumption decreased by 1.31% to 522.15 tons, gold bar and coin consumption decreased by 10.46% to 191.73 tons, and industrial and other gold consumption decreased by 8.79% to 64.21 tons. It can be seen that the decline in the price of gold is mainly due to the continued increase in interest rates by the US FED to combat inflation. Among the two significant gold-consuming countries, India’s gold consumption in the third quarter has recovered to the level before the epidemic, mainly driven by urban residents’ consumption growth. In contrast, consumption in rural areas is still relatively conservative. Gold consumption in China increased as lifting the lockdown in Shanghai boosted jewelry consumption. In contrast, the depreciation of the yuan and the fall in the stock market raised safe-haven demand for gold.

Where to get more info?

Click TEJ Taiwan DB → TEJ Profile → Macroeconomics (By Classification) → M_Important indicator of Commodity raw materials.

You can get information about the price of gold and other precious metal raw materials!

If you have questions about this article or want further access to the TEJ Database, feel free to leave a comment or email us.

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