Moderate global demand is the other reason to hit gold prices down. The latest data show that demand from China and India, the largest consumers of gold, sharply declined in recent months.
After surging to a six-year peak in the international market and an all-time high domestically, Gold prices have now paused to take a breather.
Prices have corrected by about 6 percent from their recent highs in the key London spot market and domestic futures market as well.
The US-China trade deal optimism boosted market confidence and limited the demand for the yellow metal.
Earlier, trade war uncertainties hit the global economic sentiments adversely which incited investors to stay away from riskier assets and depend on traditional safe-haven assets like Gold.
As per the recent reports, China and US trade negotiators have started talks on a deal to settle the trade dispute. Both countries are close to reaching the first phase of the primary trade deal.
The deal is likely to defuse the 15-month long trade war between the world’s two largest economies.
The US started imposing tariffs on Chinese exports since mid-June last year, and as a retaliatory measure, China too raised tariffs on US goods.
Later, both countries started imposing punitive tariffs on each other comprising a large share of their trades. The dispute between the world’s largest economies gradually affected the global economic sentiments and fanned fears of a recession.
Concerns over economic slowdown lead global agencies to cut the global growth rate that prompted investors to rely on gold like safe commodities.
However, China’s recent announcement of new guidelines for the protection of patents and copyrights is an encouraging sign to solve the trade clash. The theft of intellectual property has been a sore point between these countries.
Global financial markets reacted positively towards the latest trade deal developments. US Dow Jones Industrial Average advanced to a new all-time high this week. Likewise, Indian stocks too surged with Nifty 50 index posting new highs.
Stocks and indices across the globe surged on hopes that the ending of a trade war could boost market optimism and the global economy.
The deal is expected to be completed in stages. Phase one of the deal had been completed in November, but now it may fall into next year due to China’s pressure for extensive tariff rollbacks.
However, negotiators have pressure to reach a deal before the new tariffs deadline. The new tariffs set on Chinese goods such as smartphones and laptops will be implemented by mid-December.
Easing trade tensions coupled with a strong dollar now weighing on gold’s sentiments. The recent positive economic releases hint that no further rates cut from the US, which boosted investor sentiment towards riskier assets.
Moderate global demand is another reason that has puled gold prices. The latest data show that demand from China and India, the largest consumers of gold, sharply declined in recent months.
Indian gold imports fell for a fourth consecutive month in October due to near-record high prices, which deterred customers from festive buying.
China gold imports also shed to the lowest level since 2016 in October, indicating subdued buying interest from local consumers.
On the price front, a congested trade inside a tight range is favoured initially, but a sharp liquidation cannot be ruled out once the trade-related worries are completely resolved.
The recent trade optimism, rally in global equities, moderate demand from key consumers, unchanged central bank holdings, and unattractive hedge fund participation are likely to make the sentiments vulnerable in the immediate run.
(The author is Head Commodity Research at Geojit Financial Services)
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