Gold dropped again below 1300 USD/ounce as dollar continued its bull run and Chinese authorities announced that demand on gold in China dropped by 19% in the first half of 2014.
Gold demand growth in Asia used to be the main driving factor behind the changes in global demand on gold. However, after India levied heavy duties on gold imports, gold consumption in the country stagnated. In China recent probe into commodities-backed loans and stronger dollar caused a sharp drop of the gold demand in early 2014.
Without a stronger demand for gold in Asia, gold market may suffer from a high surplus for years to come. Over the last 10 years gold ETFs amassed more than 2000 tons of gold and since 2013 they’ve been gradually selling the metal, pushing the prices lower. According to a recent report, ETFs still hold more than 1500 tons, which accounts for 37% of an annual supply.
Conclusions
We remain bearish on gold prices in the long term. With lack of strong demand growth in Asia it’s hardly possible that the market can find it’s equilibrium near current levels. We expect that the gold prices will decline to 1200 USD till the end of 2014. Should the FED surprise with the suggestions about first rate hike in I quarter of 2015, outflows of gold from ETFs may accelerate and gold prices may drop even lower.
X-Trade Brokers Dom Maklerski S.A. does not take responsibility for investment decisions made under the influence of the information published on this website. None of the published information can be treated as a recommendation, disposition, promise, or guarantee that the investor will achieve a profit or will minimize risk using the information published on this website. Transactions including investment instruments, especially derivatives using leverage, are in its nature speculative and can provide both profits and losses that can exceed the initial deposit engaged by the investor.
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