SINGAPORE: Gold headed for the biggest weekly loss in more than two years as progress in U.S-China trade talks hammered demand for havens and sent miners’ shares tumbling.
Spot bullion is 3% lower this week, the most since May 2017, after prices dropped on Thursday as Washington and Beijing moved closer to a phase-one agreement. Other precious metals plunged, with silver down 6.1% since Monday.
Gold prices have been sustained in 2019 by the frictions thrown up by the trade conflict, interest rate cuts from the Federal Reserve, and robust demand from investors and central banks. That trio of drivers is now under attack as the two largest economies near an initial pact, with the sides agreeing to a tariff rollback as part of any deal. At the same time, the U.S. central bank recently indicated that after three rate cuts, policy makers are now pausing.
"The principal driver behind the weakness in gold has been increasing optimism about the trade outlook,” John Sharma, an economist at National Australia Bank Ltd., said in an email. The increasing likelihood of a phase one deal between the U.S. and China, rising bond yields and increasing risk-on environment has dented the allure of the precious metal further, he said.
"However, it should be remembered that the trade deal is not done and dusted,” and there still remains a lot of unresolved issues, which will provide some support for gold, he said. There is opposition among members in the U.S. administration regarding the rollback of tariffs and, even if this deal were to go ahead, the more difficult issues -- such as Huawei Technologies Co. and intellectual property -- remain, he said.
After tumbling 1.5% on Thursday, gold for immediate delivery steadied in the week’s final session at $1,468.95 an ounce at 12:49 p.m. Singapore. It remains 15% higher this year. The week’s losses were compounded by news that China’s central bank, which had been a consistent accumulator of bullion since late 2018, failed to add to holdings again last month.
The slump in gold prices sent miners’ stocks tumbling. In Australia, Newcrest Mining Ltd. fell 4.6%, Northern Star Resources Ltd. slumped more than 6% and Evolution Mining Ltd. declined 5.8%, the most since February 2017. Shandong Gold Mining Co. fell 3% in Hong Kong.
"There is some positive news on the trade war but we have had such kind of news many a time and we have not seen any follow on measures taken after that. So it is very important to see what is the next step in these discussions,” said Chirag Sheth, a consultant at London-based Metals Focus Ltd. If that "does not happen and the world economy doesn’t recover, you are still looking at a scenario where gold is still positive.” - Bloomberg
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