Gold retail demand seems to be faltering in Hong Kong, where gold recently hit a 6-year high. Gold gift sales are down 4.4% year-to-date and look stagnant in the current month. Shoppers seem concerned by three factors right now. First, those prices are very high; that seems obvious enough. Second, that the Year of the Pig is viewed as a less-great year to get married in. And 3rd, that US-China trade war uncertainties meant future economic conditions are less favorable than before.
The result is that retail gold demand in Hong Kong has fallen back to primarily investment purchases. Typically gold investors form a steady floor for Hong Kong demand, and jewelry sales are the variable above that. The year is just passing through the summer wedding season, so we are keeping an eye on sales for the next few months.
Some trade outlets are whispering that people are trading in gold bars bought before. This would mean either that people are strapped for cash, or they expect lower gold prices in the near future. It could be that Chinese people are concerned about weak current data from their economy and are simply hoarding cash. Gold prices are expected to rise as several countries (including the US) weaken their currencies by lowering interest rates.
Technical chart readers tell us we are at a critical inflection point for gold. As old-time traders used to say, “it’ll either go up or down from here”. So we face the same old two questions traders have had to answer forever: Which way, and When? Your friendly Gold Enthusiast took a crack at the When question last week.
Which direction – in the US at least – depends most on what the Fed does next. If they lower interest rates, gold will head up in US Dollar terms. If they decide to leave rates alone we may well see a drop in gold prices, again in US Dollars.
At this point we pause and think wistfully back to when the market wasn’t so driven by the US Federal Reserve…
The Gold Enthusiast
DISCLAIMER: The author is long the gold sector via small positions in NUGT, JNUG, a few junior miners, and covered calls on part of the NUGT position. He has no plans to trade the shares in the next 24 hours but is watching option prices for another possible covered call trade.