Gold Price Crashed 25%, But Investors are Still Buying | Federal Reserve commodities | CryptoRank.io
Gold prices have experienced a significant drop, losing nearly 25% of their value since the onset of the US-Iran conflict. On Friday, the price dipped to around $3,975 per ounce but managed to rebound slightly to approximately $4,020 by Monday. Despite this decline, there has been a notable influx of investment into gold exchange-traded funds (ETFs), with billions pouring into these assets even as prices fell.
The current selloff raises questions about the factors influencing gold's price decline and what might happen in the near future. The Federal Reserve's recent actions, particularly its decision to raise interest rates in September, have contributed to growing inflation concerns. Markets are now predicting an 80% likelihood of another rate hike in December, which could further impact gold prices.
Higher interest rates make interest-bearing investments, such as bonds, more appealing compared to gold, which does not yield any interest. Additionally, last week's downturn in technology stocks pressured investors to liquidate assets for cash, further exacerbating the situation for gold. Data from the Commodity Futures Trading Commission (CFTC) indicates that money managers have been steadily decreasing their bullish positions in gold futures, with a net total of 104,206 contracts reported as of October 20.
Interestingly, there seems to be a disconnect between gold demand and its market price. According to Bloomberg, physical gold-backed ETFs have seen 14 consecutive weeks of inflows, leading to a total of nearly 102 million troy ounces held, the highest level since mid-2022. This trend suggests that while speculative traders are pulling back, long-term investors are still committed to accumulating gold.
The World Gold Council reported that gold ETFs drew in a record $31 billion during the third quarter, with holdings increasing by 67 tonnes in September alone, despite falling prices. However, this trend may be losing momentum; global ETF holdings fell by about 6.8 tonnes in the week ending October 19, marking the first weekly decline since July. The largest gold fund in the US, GLD, saw a decrease of $2.3 billion over five days, although smaller gold ETFs still attracted investments.
As for the future of gold prices, the $4,000 mark has become a critical threshold to watch. The forthcoming Federal Reserve decision on Wednesday and the US inflation report on Thursday could play pivotal roles in determining whether gold stabilizes or faces another downturn. Many gold stocks are currently seen as oversold; approximately 92% of stocks in the gold miners ETF, $GDX, are trading below their 50-day moving average, the highest percentage since late July. This figure has surged by over 80 percentage points in just 21 trading sessions.
Bob Haberkorn, a strategist at StoneX, indicated to Reuters that he expects gold prices to remain around the $4,000 level until the Fed's announcement. For investors, continued demand for ETFs and reduced expectations for further rate hikes could provide a foundation for a potential recovery in gold prices. Conversely, if outflows persist and inflation remains stubborn, gold may be at risk of further declines.