Gold Prices Bottom Out

Chennai: With the deadline for Chinese investors to pull out of leveraged exposure on gold ETFs ending by Friday, analysts believe that gold prices, which have seen significant correction from all-time high levels, have bottomed out.

Chinese investors pulled a record US$2.91 billion out of domestic gold exchange-traded funds (ETFs) in June after the government decision to disallow individuals to obtain paper exposure and, in some cases, trade using leverage. However, there is no ban on Chinese residents owning gold.

In fact, the Chinese central bank has been on a historic buying streak, extending its reserve accumulation to over 20 consecutive months. China’s year-to-date gold imports till May was 692 tonnes, 76 per cent higher than year-ago period, which indicates that Chinese physical gold buying has been strong, while the dependence on highly leveraged paper gold is being curtailed. Chinese institutions had stopped allowing individuals to open new positions since 2022 while permitting existing customers to close trades. The July 24 deadline completes a gradual withdrawal from gold ETFs.

As the deadline ends, analysts find that the gold prices have bottomed out.

“The Chinese withdrawal from gold ETFs has been gradual and the market has already factored this in the prices. It seems, China has been sensing something in the US economy,” said Ajay Kedia, MD, Kedia Commodities.

Further, the dollar has been moving in a close range and this is supporting gold. “The US Federal Reserve was supposed to increase the interest rates. However, with inflation cooling off, the Fed may postpone rate hike and this would support gold,” he said.

With gold prices falling to $3940 per ounce and rebounding above $4000 levels, Kedia finds that gold prices have bottomed out. According to him, if the Federal Reserve postpones rate hike, gold prices will start moving up and rebound to the earlier levels. It had touched $5600 per ounce before undergoing correction.