Although physical demand in China and India have picked up, gold prices remain at low levels and are unable to make substantial upside moves.
We really don’t pay that much attention to gold’s demand because gold is the only commodity where physical annual demand is only a tiny fraction of total supply available. Unlike base metals, where physical demand plays a big role because of their industrial uses, shortages of gold caused by physical demand never happen.
For this reason, the price of gold is almost entirely dependent on the factors that drive traders’ psychology, such as inflation and the dollar. Despite all that, we still see analysts writing lengthy reports analyzing factors with zero predictability, such as jewelry usage and annual gold production.
Since August, gold prices haven’t moved much. They have traded between $1,160 per ounce and $1,080 an ounce. As we pointed out in July, gold broke a key support level and now prices have some resistance to overcome before they can attempt to advance.
Gold is considered a safe-heaven asset and certainly equity markets are not in their best shape at the moment. However, it’s hard to imagine gold prices rising while commodities markets, overall, fall and the dollar is strong. The same applies to silver, which is showing the exact same behavior.
What This Mean For Metal Buyers
Gold and silver prices remain weak and it’s difficult to see them increasing while commodities keep falling and the dollar remains strong. Buyers should keep an eye on $1,160 per ounce and $15.6 an ounce levels. A break above these levels would signal a change in the direction of the short-term trend.