Daily Management Review

Why is the safest asset getting cheaper?


08/30/2018


Gold has an image of a very reliable reserve asset, capable of withstanding any crisis or a surge of inflation with profit or at least without losses. So in turbulent times, the demand for gold and the prices for it usually grow.



Agnico-Eagle
Agnico-Eagle
Why, then, is gold falling in price now? After all, there are so many crisis phenomena around: the trade war between the US and China, the withdrawal of the UK from the EU, the collapse of the Turkish lira, the domestic political and debt problems of Italy, the conflict over the Iranian nuclear program, the tightening of US sanctions against Iran and Russia, and now the impeachment issue of Trump.

And the price of a troy ounce has been steadily falling since April against the background of all these potentially very dangerous for the global economy and global financial stability of events. Then, the quotes reached the annual maximum at the level of 1365 dollars, then by mid-August they decreased to almost 1170 dollars, the lowest level since January 2017. In other words, gold has fallen in price by almost 15 percent for some four months. In the last days of August, quotations rose to about $ 1,210 per troy ounce after a small rebound.
"Professionals are running away," - says Boerse-online, analyzing the market for gold futures. "Never before there were so many players on the decline in the gold market," states Carsten Fritsch, commodity market analyst at German bank Commerzbank. "The noble metal widely known as "anti-crisis asset" and "quiet harbor " found itself in crisis," - concludes  dpa news agency.

What is the reason? The Capital magazine provides a wide variety of explanations from experts. Some point to a low demand for gold on the fundamentally important market for India, while others admit that modern investors regard stocks of such technological giants as Amazon and Apple as the most reliable assets. Others believe that the market is afraid of possible large sales from the side The Central Bank of Turkey, which is plunging into a crisis, and so they are prudently closing positions.
Still, one of the main reasons for the fall in the price of gold is strengthening of the US dollar. In an interview with dpa, the analyst of German bank HSH Nordbank Jan Edelmann explains: gold in the world market is traded for dollars, and if the US currency becomes more expensive, many market players, especially in emerging economies, have to cut purchases, which leads to a fall demand. A similar effect, by the way, is observed in the oil market.

In general, the dollar - the eternal rival of gold, recalls the agency dpa. According to Karsten Fritsch of Commerzbank, investors, also nominated in dollars "by American investors, are considered reliable high-class assets." At the same time, bonds have one extremely important advantage: they ensure regular receipt of interest payments, whereas gold simply lies in the investment portfolio in anticipation of the growth of the exchange value.

All this overshadows prospects of the noble metal, because a study of the British analytical company Capital Economics came to an unambiguous conclusion: gold in the past was more expensive only in those cases, when the dollar was simultaneously cheaper.

In such a situation, experts do not expect a "renaissance" of gold: there is no question of any return to the historic maximum of seven years ago, when the noble metal cost over $ 1,900 per troy ounce. But the specialists still count on the certain growth of quotations in the foreseeable future. Thus, Jan Edelmann believes that the gold has already passed the main part on the way down, and now the movement can start to rise. Carsten Fritsch is waiting for a technical rebound: at some point, many players will have to close their positions, and this will lead to growth prices, the more so if a real crisis breaks out somewhere on the planet Moreover.

The Boerse-online portal quotes by Nitesh Shah, analyst of the raw materials markets of the European branch of the US investment company Wisdom Tree: "Our base scenario is based on the growth of quotations to $ 1,307 per ounce by mid-2019."

source: dw.de






Science & Technology

SpaceX Receives Approval To Create Research & Manufacturing Facility In Los Angeles

JPMorgan: Transition to e-money will be based on blockchain

Tesla In Advance Talks With CATL For Using Lithium Batteries

Financial giants and US government turn to quantum computers

Long Way To Go For Coronavirus Vaccine, Say Drgumakers

Google's subsidiary launches recognition service for photoshopped images

Unapproved Drug For Coronavirus Treatment And Testing Given By Gilead Sciences

Live Facial Recognition Cameras Will Be Used By London Police

Driverless Vehicle For Its Ride-Sharing Service Unveiled By GM’s Cruise

Amazon will allow customers to pay with palms instead of cards

World Politics

World & Politics

Japan’s vice minister will fly to Lebanon to make case for Carlos Ghosn’s return

Compared To China, More New Coronavirus Cases Being Reported From Outside It

EU Informs Britain That It Can’t Slacken EU Climate Goals & Carbon Pricing

France shuts down first reactor of the country's oldest NPP

Coronavirus Outbreak Delays Several Conference And Trade Deals Across The Globe

Germany pledges to fight right-wing extremism after Hanau shooting

Ex-head of Mexican Pemex will be transferred to Madrid prison

China Releases First Detailed Study Of Coronaviurs Attack, Finds Elderly At Most Risk