Gold Investors Taking Advantage of 1-Year Lows As Buying Picks Up
(Kitco News) - Gold prices may have further room to fall but it appears that physical sellers are currently exhausted, according to sales data from Kitco Metals.
Peter Hug, global trading director at Kitco Metals, said that selling in the physical marketplace stopped about two weeks ago and he is now starting to see buyers jump back into the market as gold prices hover near their lowest level in a year.
“Two weeks ago Kitco saw about three buyers for every seven sellers. Now as investors take advantage of lower prices, we are seeing nine buyers to one seller. The activity has completely reversed,” he said.
August gold futures last traded at $1,227 an ounce, relatively unchanged on the day.
However, while gold bears are looking a little exhausted, Hug warned that there is still scope for prices to move lower in the near-term.
He added that while $1,220 an ounce has held as initial support, the level hasn’t been thoroughly tested.
“Fundamentals haven’t change. The Fed is still looking to hike interest rates two more times this year; geopolitical tensions are easing and the rate differential between the U.S. and Europe continues to widen. These are all factors that continue to support the U.S. dollar,” he said.
Ultimately, gold prices will need to hold support at $1,220 and break through initial resistance at $1,237 an ounce to attract more long-term buying momentum, Hug said.
While current market conditions support further U.S. dollar strength, Hug also noted that the environment can change relatively quickly.
“There is a lot of stuff out there like the threat of a growing trade war that could turn the Fed fairly dovish,” he said.
Hug’s optimistic outlook on physical gold demand also matches the latest sales data from the U.S. Mint, which is updated on a daily basis. Halfway through the month, the U.S. Mint has sold 17,000 ounces of gold in various denominations of American Eagle gold coins. If the current sales pace continues, July could be the Mint’s best month since January. In June the Mint sold 24,500 ounces of gold.
In silver, the U.S. Mint is already seeing its best sales in three months. The Mint has sold 515,000 one-ounce American Eagle silver coins in July.
Hug also isn’t the only analyst to see value in gold at current levels. Analysts at Commerzbank have not seen much reason for gold’s current oversold levels.
“For weeks now the gold market has seen one wave of selling after another,” they said. “We no longer understand why gold should be sold to such an extent.”
In an interview with Kitco News, George Milling-Stanley, head of gold investments at State Street Global Advisors, said that some gold investors are paying more attention to costs, which has helped grow the market’s newest low-cost gold-backed ETF.
SPDR Shares Gold MiniShares, which launched less than one month ago and has the lowest management fees at 18 basis points, has already seen inflows of $44 million, said Milling-Stanley.
“As we can see there is interest in gold and investors are just being more cost-conscious,” he said.