Gold is losing some shine for investors as the price has plunged to a 20-month low on the back of emerging market currency depreciation.
The price dropped 3% in recent weeks – taking the price to $1200 an ounce.
The figure is a sweet spot for gold producers as profit margins are eroded by production costs.
The industry regards falling below $1200 an ounce as a trigger for slowing production which hits profits.
Prices are falling as the US dollar strengthens against weaker emerging market currencies.
Emerging market problems
The problems are the weakening Chinese yuan and Turkish lira.
Monetary policy outside America is making the problem worse.
Central banks in Europe and Japan have delayed interest rate rises to create a differentials between global interest rates and those set by the US Federal Reserve and the Bank of England.
“The dollar’s strength has been one of the most important drivers of gold’s performance this year as confrontational trade rhetoric and sanctions has so far played in favour of the US,” says trade body the World Gold Council.
Gold producers and traders are hoping the price will rebound, although the signs are $1200 an ounce seems to be a sticking point for the present.
The WGC cites a short market and global economic uncertainty as drivers that may push the price up.
The good news is gold is still floating above market lows, even though the price has sunk, and the drop is the worse losing streak since 2013, having lost 10% of value since April.
Rally looks a long shot
The thinking is a strong US dollar and strong protectionist talk from US President Donald Trump is boosting the American economy at the expense of gold.
Investors see the dollar as a better prospect for holding value than the precious metal.
But for gold to rally, the dollar will have to weaken and that doesn’t look like happening any time soon.
In fact, the yuan could drop more and add more strength to the dollar if the threatened trade war continues and Trump stacks up billions of dollars of tariffs against Chinese imports.
The latest spot price puts gold just above the $1200 threshold at $1202 as the market holds breath for a fresh week’s trading.
