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3 Reasons Gold Price Lost Shine to Fall 4% in Glum November Plunge

Last Updated September 23, 2020 1:18 PM
Joseph Young
Last Updated September 23, 2020 1:18 PM
  • Gold has dropped by 4.28% in a month, a large drop in a short period for the asset.
  • Major markets including India and China have shown significant decrease in demand in the 3rd quarter.
  • Citibank has cut its short term target for the precious metal to sub-$1,500.

Since November 1, the gold price has declined from $1516 to $1451 , by more than 4.28%. Charts of larger time frames show a local top-like structure, which could lead to a deeper pullback.

The appetite for gold and low-risk safe haven assets has declined  in the past month following the agreement of a phase one trade deal between the U.S. and China.

The extended slump of the precious metal since achieving a yearly high in August 2019 indicates the outflow of capital from the safe haven market to equities .

Investors likely see less geopolitical risks to hedge assets with gold

The main factor behind the strong rally of gold throughout 2019 has been the lagging trade talks between the U.S. and China .

As both countries struggled to finalize a phase one trade deal due to their differences on intellectual property protection  and industrial policy reforms, the demand for asset continued to increase.

However, since October, as the U.S. and China began to show progress for the completion of a deal , the gold market has seen an outflow of capital.

gold price
Smaller time frames show rejection for gold at key resistance levels (source: TradingView)

“We’re seeing some momentum and signs of progress in the trade talks; also expecting some good (economic) data this week and all this is collectively providing optimism. It is ‘risk on’, so gold prices are under pressure,” Phillip Futures analyst Benjamin Lu told CNBC. 

The drop in geopolitical risks in the global economy  has eliminated most of the short term demand, which pushed the price up in the 3rd quarter of the year.

Major gold markets performing poorly

According to a report from the World Gold Council, the weakening economy of India has led to a decline in consumption  in the second largest gold market in the world.

At the start of the third quarter, the demand for the precious metal in India dropped  by more than 32% to 123.9 tons.

The combination of rising gold prices from July to August and the slowing growth of the Indian economy led two major gold markets in India and China to perform exceptionally poorly  in the second half of 2019.

Consequently, net imports of gold also dropped by 66%  in India, indicating a clear lack of demand for the safe haven asset heading into 2020.

Citibank cuts target

While Citibank remains optimistic on the medium term trend of gold , the investment bank cut its short term target to $1,485.

The price of the precious metal remains at around $1,455, as the rejection of $1,458 on smaller time frames prevented a seemingly rapid recovery to a key resistance level at $1,464 .

A target cut to sub-$1,500 following predictions for $2,000 just three months ago demonstrates noticeably worsening sentiment around the gold market.