Gold off to a flying start in 2020

The drone attack by the Americans to kill Iranian top General Quassim Suleimani got gold off to a flying start in 2020 as the yellow metal soared by $28 to $1,548 per ounce on the 3rd of January 2020.

The counter attack by Iran, when it slammed missiles into two US military bases in Iraq on 6th January, further enhanced the yellow metal’s status as a safe haven.

Gold soared well past the $600 mark to be quoted around $1,613 per ounce in futures trading the same day. However, unlike the assassination of Archduke Franz Ferdinand of Austria-Hungary that triggered World War 1 more than a hundred years ago, both Iran and the US appeared to back off, which de-escalated tensions in the region.

Moreover, after it became evident that both sides did not want to escalate matters further, the yellow metal shed most of its gains and closed in London (pm fixed) on the 9th at $1,550.85 per ounce, it fell even more during the day. In fact, the yellow metal had one of its worst trading sessions as it shed almost 4% in a single day.

Then, the US Congress’ move to swiftly try and defang the President’s powers to wage war also helped in bringing normalcy in the volatile markets.

The international gold markets looked at US data numbers and the focus now shifts to next week’s signing of the first phase of the US-China trade deal.

On Friday, gold declined initially in London to $1,548.85 per ounce in the morning fix. However, after Trump imposed fresh sanctions on Iran and US farm employment data numbers failed to meet expectations, it ended the day at $1,553.6 per ounce (London pm fixed on Friday).

But, the gold price moved up even further after the US markets opened and ended in New York in the $1,562-63 per ounce region, the range being in the $1,546-$1563 per ounce range. In spite of the upheaval and volatility in the markets gold has still gained by around 2% in the New year.

In the domestic market the yellow metal soared by around 4.4% in the New Year as it followed the international price (there is a correlation of almost 1) to scale its peak of Rs. 40,851 per 10 gms on the 8th of January.

On Friday (January 10), the gold price in Mumbai actually opened slightly lower at Rs. 39,798 per 10 gms than its previous closing on the 9th and ended even lower at Rs. 39760 per 10 gms.

Gold lost over Rs.1,000 per 10 gms from its peak of Rs. 40,851 per 10 gms on the 8th of January, even the rupee strengthened from around Rs. 72 to a dollar to around Rs. 70.96.

As the gold price is released around 5 pm IST in Mumbai, the higher price in New York would be reflected only after the market opens again on Monday.

However, that would depend on the strength of the Indian rupee and what happens over the weekend in the world. Maker Sankrant would herald the beginning of first auspicious period for gold in 2020.

After a tumultuous start to the year, gold could be run on fundamentals once again. Higher gold prices could see the gold markets go deeper into discount. A weaker rupee could make gold all the more dearer and virtually bring trading to a trickle and imports to a halt.

History has a strange way of repeating itself. For, when George Bush Sr. announced Operation Desert Storm, on January 15, 1991, to oust Iraqi occupation forces from Kuwait, gold jumped by over $10 per ounce to cross $400 per ounce and close at $403 per ounce on the 16th.

However, when the war actually began, the gold prices crashed to close on the 17th at $379 per ounce. Thereafter, even after the cease fire on 28th February, gold did not regain the $400 per ounce level that year again.

Likewise, after the recent crisis blew over, gold lost most of its gains. It underlines the fact that geopolitical tensions do not impact precious metal prices permanently.

Overall, apart from US economy numbers and the January 15 deadline to sign the US-China trade deal, the gold markets eagerly await the Chinese New Year on the 25th of January to shore up demand for yellow metal. H

However, with China refusing to toe the US line to dump the nuclear deal with Iran and with US trade deficit at its lowest in three years, that trade deal with China could not considered to be a done deed till it is actually signed.

Meanwhile, last month the government put gold imports on the restricted list, no free gold imports anymore as gold imports soared during November. How it impacts the markets remains to be seen. Let’s wait & watch.

The author is an independent analyst of precious metals and diamonds, who has worked with GFMS and WGC.

Disclaimer: This is not a guide for speculators.

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