(Kitco News) - The gold market may be struggling to attract bullish momentum as it remains well below last month’s all-time high of $3,500 an ounce; however, investors are still reluctant to short the precious metal as it continues to hold support at $3,200 an ounce.
In a note on Tuesday, commodity analysts at TD Securities pointed out that gold is still above its lows following President Donald Trump’s “Liberation Day,” when he announced significant global tariffs on imported goods. He later removed the elevated tariffs and implemented a blanket 10% tax on all imports.
The U.S. government has since made further adjustments to its trade policy, announcing over the weekend that it would reduce tariffs on Chinese imports to 30%. While gold dropped 3% on Monday following improved U.S.-China relations, analysts at TDS expect the metal to remain well supported.
Spot gold last traded at $3,244.30 an ounce, up 0.23% on the day. The metal is finding support as the U.S. dollar index experiences some profit-taking after pushing above 100 points on Monday’s trade news. The dollar index last traded at 101.43, down 0.43% on the day.
Analysts expect investment demand for gold to remain elevated as uncertainty continues to dominate global financial markets. They noted that a significant portion of the renewed growth in Western holdings of gold-backed exchange-traded funds (ETFs) is due to a shift in institutional investors' strategic allocations. At the same time, Asian demand for gold-backed ETFs remains a dominant factor.
“These are not subject to change on a dime. In the East, Chinese gold ETF inflows continue to gather steam — attracting the largest inflows since April 24th over the last session, US-China trade deal notwithstanding,” the analysts at TDS said. “This changing composition of gold buyers underscores our view for limited downside but is ultimately symptomatic of a more potent macro theme. The USD isn't losing its reserve currency status. However, it is partly losing its store-of-value function.”
As investment demand remains firm, TDS noted that speculative demand among Commodity Trading Advisors (CTAs) is relatively flat; however, they are still in no hurry to sell.
“CTAs are long but won't sell without a severe drawdown toward $3,050/oz,” the analysts said. “This changing composition of gold buyers underscores our view for limited downside but is ultimately symptomatic of a more potent macro theme.”
