Gold price holds gains on short-covering, fragile stock markets

October 16, 2018

London (Oct 16)  Gold rose on Tuesday as investors unwound some bearish positions after prices jumped to a 2-1/2-month high in the previous session, driven by a global equities sell-off.

Spot gold was up 0.2 percent at $1,229.34 an ounce by 1109 GMT, having peaked on Monday at $1,233.26, its highest since July 26.

U.S. gold futures were up 0.2 percent at $1,232.70.

“Gold is still holding the gains, very close to the 100-day moving average. A close above that level could be a positive sign and provoke more short-covering and push prices higher,” said Commerzbank analyst Carsten Fritsch.

Speculators who trade on technical signals regard a break above the 100-day moving average as a bullish sign.

Data last week showed that speculators had increased their short positions and traders said the recent rally forced many to abandon those bets on lower prices.

Tensions between Saudi Arabia and Western nations, plus potential divisions in Europe over Italy’s budget, were also helping gold, Fritsch added.

Global equities edged higher after sharp declines over the past couple of days, but gains were capped as markets remained nervous because of factors including the U.S.-China trade tussle, tensions between Saudi Arabia and western powers, stalled Brexit negotiations and concerns over China’s economy.

“The stock markets are still fragile and there are warnings that we could see further losses,” Fritsch said. “Any increases in stock markets are being used as a selling opportunity. On that front there is lot of room for gold to rise further.”

Gold, usually viewed as a safe store of value during political and economic uncertainty, has fallen nearly 10 percent from its April peak as investors largely turned to the dollar as the U.S.-China trade war unfolded against a background of higher U.S. interest rates.

Julius Baer analyst Carsten Menke, who agreed that gold’s gains since the middle of last week have mostly been driven by short-covering, said prices are likely to move sideways or up slightly.

Holdings of the largest gold-backed ETF, SPDR Gold Trust , rose nearly 2 percent last week. That was its biggest weekly inflow since January, with the fund having registered declines of more than 4 million ounces since hitting a peak in late April. Holdings rose 0.6 percent to 748.76 tonnes on Monday.

In other metals, platinum was up 0.6 percent at $843.50 an ounce after touching its highest since July 10 at $850.10 on Monday.

Palladium was flat at $1,083.10 while silver rose 0.7 percent to $14.76.


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