As everyone in the U.S. lethargically awoke from the Thanksgiving feasts, the gold price plunged by more than $15 per ounce below $1,060/oz, touching a 6-year low—the lowest gold price since February of 2010. Led lower by selling pressure amid thin market volumes, gold retreated for a 6th consecutive week of falling prices. The other precious metals followed, opening more than 1% lower on Friday.
Spot prices by 9:45 am ET were as follows:
GOLD: $1,059/oz (-1.28%) SILVER: $14.20/oz (-1.23%) PLATINUM: $841/oz (-1.65%) PALLADIUM: $557/oz (-0.72%)
Unsurprisingly, the fresh lows for the precious metals were matched by an 8-and-½-month high for the dollar, which advanced above 100.0 on the DXY index for the first time since mid-March.
The stronger dollar was, in part, a signal about continued expansionist policy (i.e. quantitative easing) from the European Central Bank (ECB). The Greenback rose in response to a weaker euro (now below $1.058) and Swiss franc in the currency basket that makes up the DXY index. The picture for the dollar and for the forex market generally are exacerbated by the expectation for an imminent rate hike from the Federal Reserve in mid-December. These tandem forces—the divergence between U.S. and European monetary policy—are conspiring to drive the dollar higher at the expense of gold.
Moreover, the prospect of a rate hike—and therefore higher opportunity costs for holding gold—is dimming the outlook for precious metals among speculators on the "paper gold" price. Consequently, ETFs backed by precious metals saw their largest outflows in almost 4 months this week.
Global Demand Not Supportive Enough
One cannot address the worldwide demand picture for gold without speaking primarily of China and India, the globe's top two gold-demanding countries. The more that physical gold stockpiles leave Western vaults and find their way East, the greater sway (theoretically) that the Chinese and Indian gold markets should exert on prices.
This gradual shift in price discovery has been gradual, but there are sure signs that it is taking hold. For instance, even as low prices spurred a considerable jump in demand for investment gold (bars and coins) across Europe and the Untied States during Q3 2015, weak seasonal demand from India amid a painful drought induced by El Nino kept gold prices from staging much of a recovery. As a proportion of the global market for gold, India represents an enormous chunk that cannot be ignored.
China, meanwhile, has been more consistent in its gold buying as demand has seen its typical seasonal lift associated with the Lunar New Year. Buyers in the country are paying a slightly higher premium above London spot in Shanghai than they were in October. Imports through Hong Kong hit a 10-month high in September, but precious metals traders speaking to Reuters have observed that China alone cannot support higher gold prices.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.