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29 March 2024

Gold slumps $40/oz in early trade

Published
By Vicky Kapur

Spot gold prices slumped by nearly $40 in early trade Thursday as investors failed to make a decisive move for or against the yellow metal and it continues to remain range-bound. Spot gold was trading at $1,607.36 at 11.30am UAE time, down almost $40 from yesterday’s Comex close of $1,647 per ounce.

Worldwide, central banks will continue to amass gold at these levels, pushing up demand for bullion. “The official sector is continuing their asset diversification programmes and our estimated number of 350 tonnes net buying from the official sector might actually be too low,” Gerhard Schubert, Head of Precious Metals, Emirates NBD, said in his weekly Precious Metals Report.
“We estimated 350 tonnes in May, and we have seen more buying and from different central banks since,” he reckoned”. We therefore expect the net buying from the official sector to reach potentially 600 tonnes. Gold seems also to have changed some of its correlations, which were in place for the last year. Gold is now moving higher with higher stock prices and a recovering Euro, and has therefore rediscovered its inverse relationship with the US dollar,” he said.
The yellow metal, which made its lifetime high of $1,920.30 per ounce early last month on September 6, has seen investor interest wane as they seem have developed a liking for the greenback’s safety over the bullion’s in a somewhat contra-intuitive mode.
World stock and commodity markets have fallen again today on fears that eurozone leaders are divided over how to tackle the debt crisis. After a meeting with German Chancellor Angela Merkel, French President Nicolas Sarkozy has reportedly have said that France and Germany, two of Europe’s largest economies, were at odds over a rescue plan.
Market sentiment seems to be pushing investors to safety of the US dollar, with the US dollar index up quarter of a percentage point today to 77.26 against a basket of global currencies.
Gold has been struggling within a wide $100 per ounce range, trading between $1,600 and $1,700 per ounce without making a break on either side after its almost $400 flash fall last month to $1,530/oz levels from its all-time highs.
Silver is currently trading at $31 per ounce, down more than a quarter in six months from the $43 per pounce range in May 2011. Gold, on the other hand, is up 7.7 per cent in the same 6-month period.
“The trading ranges for silver [are] starting to be more of their usual self now,” said Schubert. “A number of silver investors have liquidated their positions and shut up shop. These huge swings have not been helpful as too many investors lost money with their silver positions,” he said.
“It feels as if silver will struggle to find the impetus and the investors’ fantasy to look beyond $40 for the rest of the year. The silver market would see an acceleration of investment above $40 but this might not be forthcoming in the meantime.”