Gold’s Resurgence Within the Commodities Markets

Last week’s recent selloff had gold struggling to clutch onto bullish momentum. The technical and therefore psychological damage suffered scared investors into ditching gold, resulting in the price almost reaching support levels. Admission of inflationary pressures and the decision to raise interest rates twice in 2023 by the Fed, providing extra stimulus to economic expansion, attributed to the gold price being crushed.

The recent global health crisis caused by the pandemic led to weakening demand by the Central Banks, investors, and the jewelry market. Last year’s accumulation by Central Banks dropped to 44.8 tonnes compared to 140.7 tonnes the year before, with 7 banks decreasing gold reserves. Action by the Central banks is a major reason for the movement in the gold price, however other factors such as economic downturns or global events are also a contributor.

Gold’s underperformance is also due to the lackluster demand for the precious metal. India’s gold market, the world’s 2nd largest consumer, nosedived as stores have remained closed and Indian weddings have been postponed. Two festivals, Gudi Padwa and Akshaya Tritiya, which usually contribute strongly to gold sales, were not celebrated in the usual style. With consumer’s disposable income plummeting due to staying at home, the Indian economy has come to a standstill and negative consumer sentiment has contributed to nonexistent gold sales in India. 90% of the country is still in lockdown, as the battle against the spread of infections continues. Delivery on online sales is prohibited, casting further negativity as demand normally supports the gold price. Projected sales for the year are estimated at 1 – 1.5 tonnes in comparison to the 30 tonnes of sales before the pandemic hit the country.

Gold has for hundreds of years been considered the most valuable of all commodities, the most secure investment, and a safe haven as it holds its value more than any other asset. With ongoing and ever-increasing prices rising, gold is regarded as a hedge against inflation. The gold price is dollar-related and has what is known as positive price elasticity, so we recommend keeping an eye on how the dollar is performing. A weaker dollar means that more gold can be bought, creating new higher highs and pushing the price to higher levels and if the dollar strengthens, the price of gold drops. Gold follows a reverse direction to the price action of shares and market sentiment.

With the recent increase of mass vaccinations in many countries, business is starting to go back to normal, spurring a more optimistic economic outlook. The supply and demand theory comes into play, as the demand for gold has waned due to the reasons mentioned above.

Should you consider accumulating gold?

Technically, in the short term, the 5, 20, and 50-day moving averages indicate that the trend remains very bearish. In January this year, the death cross on the GLD chart indicated that the price was about to plummet. Short-term traders consider the death cross a time of sell-off and a long-term downtrend taking. It occurs when the 50-day moving average crosses below the 200-day moving average. We would recommend that accumulation should be considered once the GLD trades above the 200-day moving average.

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