Gold is Ripe for Bottom-Picking on Tuesday as Price Hits Yearly Low
Gold prices pulled back sharply on Tuesday, offering a deep discount to long-term investors and anyone concerned about valuation risks in the stock market.
Bullion Prices Fall Hard
The value of gold plunged on Tuesday, with the June futures contract bottoming at $1,275.90 a troy ounce, the lowest level of the year. Bullion was last down $13.90, or 1.1%, at $1,277.40 a troy ounce on the Comex division of the New York Mercantile Exchange.
The selloff extended to other precious metals, with silver falling 7 cents, or 0.5%, to $14.91 a troy ounce. Still, gold’s premium over the grey metal has declined by 0.9% to 85.36.
The U.S. dollar, which often trades inversely with precious metals, was little changed on Tuesday. The DXY dollar index is currently trading just below 97.00. It peaked at 97.40 earlier this month.
It has been an extremely volatile four months for gold prices, reflecting shifting sentiment and risk appetites in the broader financial markets. After peaking at ten-month highs in February, the yellow metal has plunged more than 5%. As of Tuesday, prices were down slightly for 2019.
The bulk of the selloff has been concentrated in the last three weeks, with prices falling from the $1,330 range all the way back down to current levels. The downtrend has been far from linear; bullion rebounded sharply last week before continuing lower. Over the same stretch, the U.S. dollar has strengthened considerably despite not benefiting from its “safe haven” status.
Buy on the Dip
Gold will likely prove to be an attractive investment at current levels given the current macroeconomic climate. This view was reiterated recently by Credit Suisse, one of Switzerland’s largest financial institutions.
“We continue to believe gold miners will operate against a backdrop of higher gold prices YoY [year-on-year] in 2019,” the bank said. “Gold is being supported by ongoing geopolitical issues (U.S.-China trade war and Brexit, among others), concerns around slowing global economic growth and recession fears, and a more dovish U.S. Federal Reserve (no rate hikes in 2019).”
A dovish Fed will prove to be one of the most bullish factors for gold prices, according to Martin Huxley, the global head of precious metals at INTL FCStone. Huxley recently told CNBC that bullion could reach $1,400 an ounce his year as the era of easy monetary policy continues.
The Federal Reserve has all but abandoned it plans to raise interest rates this year. Although officials left the door open to a possible rate hike in their most recent policy discussion, this would require a sharp acceleration in economic growth. At present, traders have fully priced out the possibility of a 2019 rate hike, according to Fed Fund futures prices.
Also underpinning gold’s positive outlook is the sharp pickup in central bank purchases of the commodity. Case in point: the People’s Bank of China (PBOC) last month added 360,000 ounces of gold to its coffers, bringing its total reserve value to 60.62 million ounces. China has increased its gold reserves by 1.38 million ounces since November. Read more: Is Now the Time to Buy Gold?
A 2018 survey of central banks carried out by the World Gold Council (WGC) found that governments fully intend to increase their gold reserves. All 22 central banks surveyed indicated that they will add to their holdings in the next 12 months to improve risk-adjusted returns and boost the value of their nation’s collateral.
Featured image courtesy of Shutterstock. Chart via Barchart.com.