Pundits need to polish up their knowledge of the gold market after speculating that the price of the precious metal is doomed to fall, according to trade body the World Gold Council.
The council argues that the pundits are wrong and that although the value of gold has taken a tumble on the markets, a range of factors mean demand is stable.
The trade body spoke out after watching the price of gold fall from a peak of $1,826.80 an ounce in September 2012 to $1,093.59 an ounce in July 2014, which is the lowest price since the start of 2010.
The body claims the latest slump came after more than 4 tonnes of gold was offloaded on the Shanghai Gold Exchange, which was an exceptional level of trading compared with a normal day.
Crucial factors
Four main reasons are put forward for the decreasing value of the now not so precious metal:
- An improving US dollar price making gold more expensive in countries that have weaker currencies than the dollar
- A fall in demand in the biggest gold market – China
- Concerns over the Chinese economy and a general decline in commodity prices
- The easing of global tensions as many investors turn to buying gold in times of uncertainty
“These views are important, but they miss some other crucial factors that affect the gold market that investors should consider,” said a spokesman for the World Gold Council.
“We believe three other views ought to be put forward that explain the state of the market.”
Mystery trades
The spokesman listed them as:
- Gold is not like other commodities and the price is not related to rises and falls in other markets
- The Chinese market is not as poor as many commentators suggest. Although demand has reduced since 2013, the first three months of 2015 were the fourth best on record and the national bank has increased gold reserves by 59% over the same period
- The impact of a strong dollar is overstated
“Our view is the market is reacting to speculative trades rather than a trend in poor demand for gold,” said the spokesman.
“The trades that led to the price falling were not representative of the broader supply and demand dynamics. The transactions are not indicators of how the long term market will react.
“We don’t know who made the trade and why in Shanghai, but we have noted similar activity in the nickel and copper markets.”
