Gold: Trade dispute hopes push price well below 1500 dollars

At the moment, the equity markets are again benefiting strongly from the burgeoning hope in the trade dispute. The hope for a partial agreement between the USA and China had already pushed the Dax above 13,000 points on Monday – for the first time in almost a year and a half. Even today, the DAX is still up 13,145 points, albeit at a much slower pace than yesterday. The more positive mood has now been fed by reports from the Wall Street Journal and the Financial Times. There it says with reference to US government representatives that the USA and China could take back a part of the tariffs introduced in the past months. At the end of last week, both sides had already stressed that the partial agreement was about to be concluded. The news agency Bloomberg writes, citing people familiar with the matter, that Chinese President Xi Jinping could travel to the US this month to sign the so-called “Phase 1 deal”.

By withdrawing the punitive tariffs introduced against China at the beginning of September, the US would be responding to one of China’s core demands, which “would be a real step forward in the trade conflict,” commented market observer Thomas Altmann of asset manager QC Partners. He noted a “continued boundless euphoria on the stock market”, so that some investors are now already looking at the DAX record high of 13,596 points from January 2018. Until then, the index is still missing about 3.3 percent. However, the expert pointed out that the hard facts should not get out of sight. The Dax rating is now higher than it has been since the financial crisis. “From a technical point of view, the stock markets are now extremely overbought, so a correction is overdue.

 

Gold is currently lagging behind, and its price has fallen well below the 1500 dollar/troz mark due to the better mood on the markets. The precious metal is currently trading at 1487 dollars with a minus of more than 1.3 percent. Fundamentally, however, there is much to suggest that the asset in demand in times of crisis will continue to be successful, for example the demand for gold from exchange-traded index funds (ETFs) remains unbroken. As the World Gold Council (WGC) announced in London on Tuesday, the funds’ gold holdings rose to a new record high of 2855.3 tonnes in the third quarter. This represents an increase of 258 tonnes on the previous quarter.

The strong fund demand was driven by strong interest in safe investments and the loose monetary policy of central banks. Low interest rates generally increase the attractiveness of gold because they reduce a structural disadvantage of interest-free investments.

Overall demand for gold also picked up in the summer quarter. It rose by three percent year-on-year. However, overall demand was dampened by lower interest from the jewellery sector and lower demand for bars and coins, which fell by 50 per cent. The higher gold price is cited as one reason for the weaker demand in these sectors. Central bank interest in gold was also weaker.

 

Further potential in the long term, economic developments will decide

At the beginning of October, the US bank Citigroup had identified a potential for gold of up to 1700 dollars in an analysis. The analysts expect a stronger demand for the safe haven of gold due to growing economic worries. Over the next six to twelve months, the price of the precious metal could rise to 1700 US dollars per troy ounce (around 31.1 grams), the study said. Meanwhile, it can be observed that the demand from investors on the financial markets is compensating for the reluctance of private gold buyers in the emerging markets, the analysts explained.

The price of gold has risen sharply since the end of May, spurred on by the temporary escalation of the conflict between China and the USA. For the time being, the price seemed to have reached the limit at the beginning of September at 1552 dollars. The price bounced off this high for the year to date and has been moving sideways around the 1500 dollar mark ever since. Further economic developments as well as the course of negotiations between China and the USA should be decisive for the price’s future direction in the medium term.