While a US-China trade deal is still uncertain, efforts by both the sides to reach a deal have been enough to result in some exodus from the metal.
Gold hit a three-month low of $1,445.7 an ounce in the international market earlier this week but has since recovered to trade near $1,465/oz. The metal recovered as market players grew sceptical about the US-China trade deal, while geopolitical tensions and growth concerns increased its safe-haven allure.
Despite conflicting statements from the US and China, there was growing optimism in the market that the world two largest economies would agree to a deal before the year ends. Both sides decided against slapping fresh tariffs and there was also talk of rollback of some in a phased manner.
But doubts surface as no details were forthcoming about meeting that would have sealed the deal. Comments from US President Donald Trump weakened the already fragile market sentiment. While saying that the talks were progressing well, Trump warned that China may face substantial tariffs if no deal was reached.
Increased tensions in Hong Kong added to the uncertainty. The protests that have intensified are a contentious issue between the US and China.
Concerns over the Chinese economy and unrest in other parts of the world too strengthened gold. Anti-government protests have rocked Chile, Bolivia, Iraq, Lebanon and some other countries as well.
Worries over the Chinese economy grew as industrial production and retail sales remained below expectations.
While gold is off the lows, it is an uncertain path ahead. Gold investors, in the last few months, invested in the metal in hope of monetary easing by major central banks and amid US-China trade tensions.
While the trade deal is still uncertain, efforts by both sides to reach an agreement have been enough to result in some exodus from the metal.
Adding to it is the Fed stance to keep rates steady unless economic outlook worsens. As per Bloomberg estimates, market players now see a marginal 6 percent chance of a rate cut during the December 10-11 meeting.
Investor scepticism is also evident from ETF outflows. Based on Bloomberg calculation, gold holdings with global gold ETF’s stand near 2297 tonnes, down from a recent six-year high of 2,333 tonnes.
On the whole, we may see volatility continuing in gold as market players react to trade and geopolitical development, however, bulls may remain on the back foot unless there are fresh triggers.
(The author is VP - Head Commodity Research at Kotak Securities.)Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.Are you happy with your current monthly income? Do you know you can double it without working extra hours or asking for a raise? Rahul Shah, one of the India's leading expert on wealth building, has created a strategy which makes it possible... in just a short few years. You can know his secrets in his FREE video series airing between 12th to 17th December. You can reserve your free seat here.