Gold Prices Decline: Led by Slowing Demand from Retailers

Gold prices fall

This series analyzes gold prices and market fundamentals. For an in-depth look at gold and related companies, sectors, and drivers, please refer to our Gold ETFs page.

June gold futures trading in COMEX fell by 1.42% and closed $1,187.60 per ounce on May 26, 2015. Prices fell due to weak demand and the strong US dollar.

Gold tracking ETFs like the SPDR Gold Trust (GLD) and the iShares Gold Trust (IAU) also mirrored gold prices. They fell by 1.39% and 1.35%, respectively, in yesterday’s trade. Similarly, the VanEck Vectors Gold Miners ETF (GDX) also fell in Tuesday’s trade.

Gold Prices Decline: Led by Slowing Demand from Retailers

The decline in gold prices impacts gold producers’ margins like Barrick Gold (ABX), Yamana Gold (AUY), and B2Gold (BTG). These companies account for 14% of GDX.

Lower buying activity in the Indian market fueled negative sentiments in the bullion market. Indian jewelers and retailers’ sluggish buying activity added pressure to gold prices. China and India represent 54% of the global gold demand. Slowing demand from China will also put pressure on gold prices.

On the global front, the strong US dollar dragged gold prices lower. The US dollar appreciated against the basket of currencies due to strong US inflation figures and better prospects of the rising interest rate by the Federal Reserve. Industry consensus suggests that the Federal Reserve might increase the interest rate by September 2015. The strengthening US dollar makes dollar denominated gold expensive. So, demand drops and gold prices decline.

This is the fifth down day for gold prices in the last ten trading sessions. Gold prices increased by 0.07% more on the average up days than on the average down days, over the same period. Gold performed badly against all of the other commodities in yesterday’s trade. Gold prices rose by 0.54% YTD (year-to-date)—led by improving demand from India.