Gold prices declined after hitting a peak during the Lunar New Year holidays. Gold prices in New York basically got back to around 1,330 an ounce where it was before the holiday. The industry expects that gold may still have investment value in the Year of the Dog.
Data shows that dragged by a plunge of gold prices in New York in February 20, international gold prices almost erased all gains that accumulated during the Spring Festival holiday. Major contracts closed at 1,331.1 US dollars an ounce in February 20.
"In the first half of the holiday, the gold market was still bullish. When it entered the latter half, it pulled back as the US dollar rebounded.” Gold investor Wang Chao said that yet, the international gold price has still risen by about 2 percent since 2018.
A good start makes many investors bullish on the gold market in 2018. "The start of 2018 is somewhat similar to that of 2017." Wang Chao said that in 2017 gold prices in New York were rapidly rebounding to around 1,220 US dollars an ounce from 1,150 US dollars at the beginning of the year. It continued to rise after a short pullback, driving gold prices up 8.6 percent in the first quarter.
Shandong Gold Mining chief analyst Ji Ming believes that in 2018, investors should not be over-bullish on the gold market. "At present, bullish and bearish factors are mixed.” Shandong Gold Mining noted in its annual report that apart from unexpected geopolitical factors, economic growth and inflation will also support the gold market. The recovery of the European economy is expected to continue, which will drive euro up against the US dollar, which is a bullish factor for gold.
“However, the determined and continuing trend of monetary tightening across the world will restrict the performance of gold and other commodities. Meanwhile, a big divergence among different EU members remains to be a sticky problem. Whether the euro will strengthen needs to be seen,” Ji Ming said.
Most industry insiders expect that the prospect of gold is more optimistic over a longer period. "History shows that gold can hedge against risks such as market volatility, sharp devaluation of the US dollar and rising inflation." UBS notes in a report that faced with market volatility and inflation fear, gold is becoming an important safe-haven for investors.
Yet the market is not optimistic about the US dollar, a factor that directly affects the gold market. "In the past 30 years, changes in the exchange rate of the U.S. dollar are more likely to link with the balance of the government budget. Worsening budget balance could lead to a devaluation of the U.S. dollar," said investment bank Macquarie.
Ji Ming said that Trump's weak dollar policy is an important strategic choice. The U.S. dollar may once again return to a weak cycle in the next few years, providing a long-term incentive for the gold price.
Demands for gold remain to be a big uncertainty for the gold market this year. Data from the World Gold Council shows that the total gold demand dropped by 7 percent in 2017. The increment of gold ETF holdings only was one one-third of the increase of the previous year. Investment in gold bullion and coin also declined by 2 percent. Demand for gold jewelry increased slightly by 4 percent year on year.
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