Gold price levels out but is expected to face pressure again soon

July 16, 2018

London (July 16)  Gold steadied on Monday as the dollar slipped, but higher interest rates in the US weighing on investor demand and a weak physical market are expected to pressure prices of the precious metal.

Spot gold was up 0.2% at $1,244.13 an ounce at 9.21am GMT, after marking the lowest since December 12 at $1,236.58 on Friday. US gold futures were 0.2% higher at $1,244.2 an ounce.

A lower US currency makes dollar-denominated gold cheaper for holders of other currencies, which could boost demand.

In June, the Federal Reserve raised its benchmark overnight lending rate 25 basis points to 1.75%-2.0%. Expectations are for another two rate rises in 2018 and three in 2019. Gold does not earn any interest or dividends and costs money to store and insure.

"While interest rates were zero, there was no real cost to holding gold, it was just like holding cash; now there is a cost," Macquarie analyst Matthew Turner said.

"The lack of big compelling themes is a problem for gold; prices are very high compared to where they were before the GFC (great financial crisis) and investor demand isn’t there." The financial crisis escalated after US investment bank Lehman Brothers filed for bankruptcy in September 2008 when gold prices were about $900 an ounce.

Investors retreating from gold can be seen in the largest gold-backed exchange-traded-fund (ETF), New York’s SPDR Gold Trust, which has seen its holdings fall more than 8% since late April to below 26-million ounces.

Physical market demand in top consuming countries China and India is also weak, analysts say. India’s gold imports fell for a sixth month in June to 44 tonnes as a drop in the rupee lifted local prices to a near 21-month high, curtailing demand. "Indian and China retail consumption has been hindered by depreciating local forex," Citi analysts said in a note.

"Investors may favour gold again, especially if trade friction rises further and becomes a more sizable threat to economic growth and to the decade-long equity market bull run." Silver was up 0.3% at $15.83 an ounce, after hitting a seven-month low at $15.67 on Friday. Palladium climbed 0.2% to $938.7 and platinum added 0.6% at $831.00 an ounce.

"Platinum market fundamentals are expected to remain structurally bearish during the second half of 2018," Citi analysts said. "Platinum mine producers, primarily South African, are performing strongly and expected to continue to do so. We also expect rising supply from autocatalyst scrap in 2018 and 2019."


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