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Informist, Tuesday, Nov. 12, 2024

 

MUMBAI – The World Gold Council sees gold prices to remain under pressure in the near term, driven by factors such as continued strengthening of bond yields and the US dollar, risk-on sentiment in equity markets, a boost in cryptocurrencies and quelling of geopolitical tensions, it said in a report. These factors might lead to a pullback in gold, it said.

 

The result of US elections has taken a bit of a knee-jerk sting out of gold’s impressive year-to-date rally. "Added to the dollar and yield impact are concerns that cryptocurrencies are now currying more favour with the incoming US administration," it said. Equity markets, particularly in the heavily weighted technology sector, have been given a further boost from expected 'business-friendly' policies, which is weighing on gold prices. 

 

Gold's negative reaction to both the US election results and a continued upmove in bond yields and the US dollar is a near-term phenomenon, the council said. "Western investors have, outside of futures, not added much gold this year and so there is unlikely a slew of sellers in the wings," it said.

 

During the start of November, gold was pressurised by higher opportunity costs, the World Gold Council said in its commentary. "The first week of November saw gold move lower after hitting a new all-time-high on the first of the month," the Council said. 

 

"Gold was pressured lower by strength in the US dollar and momentum factors including the lagged gold price, gold ETF outflows which were coming off an exceptionally strong month, and a drop in COMEX net managed money net longs, reflecting the likely unwind of pre-election hedges," according to Gold Return Attribution Model of World Gold Council. "Additionally, COMEX net positioning also fell 74 tonnes, an 8% drop from the prior week," the commentary mentioned. 

 

Although there was a sense that the pre-election run-up in treasury yields and the US dollar might have been exhausted and that a turn in the dollar might lead to lower bond yields – as it has done on several occasions over the last two years, a Trump administration is said to favour both a weaker exchange rate to encourage exports and lower interest rates to spur borrowing. The Republican sweep has gone hand-in-hand with an acceleration of the run-up in yields and a quick reversal higher in the dollar index as well, driven by a sharp and nervous move lower in the euro and yen, the council said.

 

Overall, the commentary notes that early November saw downward pressure on gold due to high opportunity costs and strengthened US economic indicators, including rising bond yields and a stronger US dollar. This environment was shaped by heightened risk appetite in equities and a notable uptick in cryptocurrency interest, all of which posed challenges to gold's price stability.

 

However, broader geopolitical uncertainties continue to play a role in the metal's strategic significance. Despite several headwinds, the council believes there's still fundamental support for gold. At 2143 IST, gold on the COMEX was at $2,606.6 per ounce, down 0.4% from the previous close.  End

 

US$1 = INR 84.39

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Taniva Singha Roy and Anjali Lavania

Edited by Deepshikha Bhardwaj

 

 

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