COMMENTARY – Global economic turmoil playing havoc with precious metals

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­­­The turbulence in global economic dynamics is playing havoc with precious metals, with gold continuing to be under pressure with prices once again falling below the psychological $1,200 an ounce and silver all but collapsing, touching $14 an ounce.

A firmer US dollar, higher US bond yields and importantly a rising US stock market is hitting gold prices. ETF outflows have also weighed on gold, as less committed gold bulls are exiting to move to the stock market.

The risk appetite of investors has become higher, and gold’s position as a safe haven is being pushed away, market analysts say.

Silver prices too have been trailing gold.

In fact, all industrial metal prices have come under pressure because of signs of an economic slowdown in China. A prospect of further US tariffs on Chinese goods to the extent of $200 billion is also weighing heavily on the prices.

Use of silver in the electronics industry is well known and is estimated at about 20 per cent. Electronics have been a target of US tariffs, raising concerns about future demand.

As for other precious metals with industrial usage, car sales in China and Western Europe have tuned weak, pressuring platinum and palladium.

Reports suggest the slowdown in China is beginning to take a toll on many consumers who have turned cautious about making high value purchases. The ongoing trade dispute with the US too seems to be weighing on consumer sentiment.

The platinum market remains significantly oversupplied. Palladium too is under downward pressure.

The demand side especially for gold continues to be lacklustre . There is a slowdown in imports into China and India, although in the case of the latter imports have picked up in July and August because of seasonal factors. There may be a slight pick-up in physical sales in India because of the upcoming festival season.

In India, the rapidly depreciating rupee has made gold much more expensive and neutralised the benefit of the price fall in the international market in dollar terms.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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