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Gold Price Is Plunging Again: 2 Reasons Why

Last Updated September 23, 2020 1:07 PM
Sam Bourgi
Last Updated September 23, 2020 1:07 PM

The price of gold plunged anew on Friday, as risk appetite fueled equities at the expense of safe-haven assets following news of U.S.-China trade progress.

Futures on December gold delivery tumbled all the way down to $1,478.00 a troy ounce on the Comex division of the New York Mercantile Exchange, the lowest since Sept. 30. The yellow metal was last down $11.20, or 0.8%, at $1,489.70 an ounce.

Gold price
Gold peaked during the overnight session before resuming its plunge at the start of New York trading. | Chart: Bloomberg.com

Gold’s rapid descent occurred even as the U.S. dollar lost half a percent against a weighted basket of global currencies. Typically, gold and the dollar move inversely with one another.

U.S.-China Trade Progress

Apparent progress in trade negotiations between the United States and China triggered a massive rally in the price of stocks, with the Dow Jones Industrial Average (DJIA) gaining as much as 400 points during Friday’s session.

On Thursday, President Trump told reporters  that negotiations with China are “going really well.” He followed up those comments by tweeting Friday morning that one of the “great things” about a China trade deal is that it doesn’t need to go through Congress for ratification.

He said:

One of the great things about the China Deal is the fact that, for various reasons, we do not have to go through the very long and politically complex Congressional Approval Process. When the deal is fully negotiated, I sign it myself on behalf of our Country. Fast and Clean!

Gold’s Four-Week Downtrend

Although gold remains in a long-term uptrend, bullish momentum has been firmly capped over the last four weeks. As Kitco reports, “a four-week-old downtrend line is in place”  on the daily chart that needs to be overcome to give the bulls a fresh technical boost.

Bullion peaked at more than six-year highs in early September, climbing all the way to $1,566.20 a troy ounce. It ended the month in the low $1,470 region before recovering above $1,500.
Even with the latest downtrend, gold’s price has risen 16% this year.

Long-Term Bullish Case Remains Firm

Despite its recent struggles, gold remains one of the top-performing assets of 2019 – a trend likely to continue into next year as central banks extend their record-breaking stimulus programs in support of regional economies.

Macro developments tied to monetary policy, economic growth and an inverting yield curve all point to sustained demand for gold. The market for exchange-traded funds (ETFs) has picked up on this trend, as evidenced by the latest gold-buying spree.

Inflows into gold ETFs have surged over the past month, logging their best winning streak in over a decade. At current levels, gold-fund holdings are at their highest  since 2012.