Despite growing infection and death rates inside China global markets have seemingly begun to discount the long term negative impact of the virus outbreak. However, Taiwan is suggesting that China is restricting WHO access to information on the outbreak which Taiwan says has resulted in the World Health Organization spreading "fake news" on the status of the situation. Therefore the potential for the virus to become a sudden and massive flight to quality buying catalyst in gold again should not be discounted.
On the other hand, given fresh damage on the charts, ongoing strength in the dollar, definitive global risk-on flows into equities and speculation that Indian gold imports in January will fall by 48% over year-ago levels provides a pretty bearish cocktail for gold prices to start today. Furthermore, the gold market closed lower in Hong Kong and the charts in the April gold contract have suffered fresh damage early on.
However gold could garner some very minimal support from news that gold ETF's raised their holdings for the 9th straight session pushing this year's net purchases up to 1.29 million ounces and to the highest level in over 12 months. According to one measure global holdings of gold bullion-backed ETFs have now reached 2537.9 tons which surpasses the previous all-time record high holdings achieved back in 2012.
Another supportive issue that looks to be discounted by the trade today is a report from the Congo that their gold production last year fell 5.7% on a total of 34,657 kg.
While Chinese December gold imports from Hong Kong jumped in December that should be considered "old news". In fact with a sustained contraction in January and February gold imports highly likely and substantial it could be impossible for Chinese gold imports to remain near 1,000 tons. In fact, for most of the last 6 years, Chinese gold demand has held below 1,000 tonnes but a sustained idling of the Chinese economy could bring 2020 imports down to the lowest level since 2012 with a net reduction in the neighborhood of 150 tonnes!
Unfortunately for the bull camp, the latest net spec and fund long positioning in gold was relatively close to the all-time record long (within 23,000 contracts) and therefore the market has used a lot of fuel to get to and remain near the $1,600 mark. Since the last positioning report into the high on Monday, April gold managed a further rally of $25, thereby increasing the odds that the spec long might have reached a new record.
In conclusion, without a major economic meltdown from a noted breakout of the virus from quarantined areas, the bear camp is likely to control on a softening physical demand argument.
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Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete and/or up to date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Financial Services LLC, unless otherwise expressly noted.
