Gold futures for August delivery declined on Friday by 0.67% to cap the second consecutive week of losses for the precious metal. As gold closed down on the day for Friday, the final price traded on the CME was $1,322.10, which is undeniably indicative of support above the $1,300 price-level.
Michael Armbruster, the co-founder at Altavest noted how it appears gold is finding support just above the $1,300 level just as the stock markets rally looks like it is getting tired. When the equity market eventually starts to pullback, he advised clients to look for gold to ignite again to the upside.
Until then, many analysts attribute the weekly decline to profit-taking and the closing out of bullish positions, especially after such an extended period of solid gains. Another possible, and arguably more likely, explanation for the recent decline in gold stems from easing global equity market fears. Throughout periods of low volatility, the demand for safe haven and risk-averse assets (like gold) diminishes, so declining prices are somewhat tacit.
Looking across the board, stocks are at record highs and volatility is nearing a record low, so if there is one takeaway from the overall market, its that there is simply no current fear amongst investors. And gold owners should see this as positive, since gold prices are, oddly, remaining strong despite a monumental decline in volatility in the wake of last months Brexit decision.
Furthermore, the July gold sell-off should not come as a complete surprise not only because of current low volatility, but also because of past events. Historically, gold has ritualistically sold- off for a few weeks throughout almost every July since the financial crisis of 2008. For July of 2014 and 2015, gold futures lost 4.97% and 8.83%, respectively.
Diminished liquidity as a result of increased legislature preventing banks from speculating on commodities, such as gold, likely contributes to the summer sell-offs, but the lack of current market fear and volatility seals the declining price deal.
Although gold prices have closed lower for two straight weeks, gold is still up roughly 25% year-to-date, which puts virtually every other asset class (like stocks and bonds) to shame.
In terms of recent market-moving events, the European Central Bank released an announcement last week regarding interest rates that was pretty vague and ambiguous as to when the next rate adjustment will occur. The tone and content of the message indicated that future rate hikes are by no means out of the realm of possibilities, so this could also have also contributed to golds decline.
With the historical aspect of July gold trading and current low volatility in equity markets, the subtle weekly decline for gold seems explicable. Going into the week of July 25th, the only potential gold-moving event is a Bank of Japan announcement on Thursday, but there are many more economic events to kick off the month of August that are likely to induce volatility and increase the desire for gold.