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Investors’ Positions as Gold Drops to a 19-Month Low

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Aug. 17 2018, Published 5:54 p.m. ET

Gold drops to 19-month low

Gold prices (GLD) haven’t been able to catch a break even as geopolitical concerns become more pronounced. On August 15, gold prices fell to a 19-month low of $1,173 per ounce as the US dollar continued its winning streak. The precious metal appeared to have lost some of its safe-haven appeal. 

Despite the trade war concerns, the political and economic tensions in the EU (European Union) (HEDJ), and Turkey’s (TUR) latest currency and economic crisis, gold has behaved like any other risk asset and not gained any bids. The US Treasuries (TLT) and US dollar (UUP), on the other hand, have been the assets of choice for investors seeking to invest in safe-haven assets.

In contrast to gold, risk assets including US equities (SPY)(DIA) have gained handsomely year-to-date, as is evident in the graph above.

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Concerns escalate

In the latest event in the ongoing turmoil in Turkey, the United States ruled out the possibility of removing steel tariffs from Turkey even if it releases a US pastor. As tensions escalated, investors dashed to US Treasuries and the US dollar. The dollar just closed below its 13-month high. This, in turn, pressured gold prices.

Gold still subdued

The market participants have been long anticipated gold prices to pick up as physical buyers come into the picture on weakening prices. However, the majority of the physical gold buying happens in China and India. Due to the currency weakness in both countries, the gold prices haven’t weakened enough to entice buyers. 

However, as more speculative positioning in gold turns bearish, we should see greater chances of short squeeze and prices rising. We’ll discuss this in more detail in the next part of this series.

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