© Nik Kalsi
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Generally, in terms of the commodity markets, even though they are trading at the lowest level since 2009, this still creates plenty of opportunities for traders. Currently, what we are seeing is the market reaction to speculation that the Fed is getting closer to raising rate later this year. Gold is quoted in dollars and a positive move in the Greenback tends to put downward pressure on prices as it reduces buying power and that is what we are observing at the moment.
Nevertheless, as we approach the month of September, or even October, there will be a lot of fears over the Greenback, as the currency could potentially enter the overbought stage and head for a correction. To look at this a little closer, it has been 935 trading days since the US Dollar and the stock market had a correction. That is more than double the average length of time it usually takes. The average rally period without a correction is 357 trading days going back to the 1950s.
Based on this assumption, there could potentially be a correction in the US Dollar and the stock market within the final half of this year. That scenario would obviously be supportive for the precious metals and boost some appetite for safe heaven such as gold. Based on that theory, investors and traders will have an opportunity to buy low and sell high. Yet, generally, the market is currently on its hunt for clues of what could happen once the Fed will raise rates in September, or whether they will delay it eventually until the December.
Besides the rise in Greenback's value, the concerns over the economic slowdown in China are the major contributors for gold decline. Respectively, China's imports of the yellow metal could fall about 40% during the year of 2015. According to Valcambi Chief Executive Michael Mesaric the gold that was used for financing been given back, as there is cheap liquidity in the market, and there is no need to use it anymore. What should investors keep an eye on and what are the other major drivers for gold performance nowadays?
What we see now is the mixed situation in the Chinese economy which has an overall impact on precious metals consumption from the world's second largest buyer. With the current slowdown in China and the recent stock market crash, demand also seems to be decreasing. Perhaps, this is because traders are currently sitting on the side lines and waiting for the current commotion to calm down.
Meanwhile, away from China, the upcoming Indian festival season which starts in August could be supportive for gold. Already in the second quarter of 2015, India has overtaken China as the world's number one consumer of the yellow metal. Whether or not Indian demand alone will keep gold prices support above recent 5-year lows, is questionable.
Where do you see bullion by the end of this year?
Gold's future will be determined by several factors including the strength of the US dollar and whether or not the Fed raise interest rates this year. Overall, I still predict gold has further to fall before we see prices stabilize. Overall, I would expect the precious metal will trade between a range of $900 to $1100 an ounce.