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Gold Slips on Dollar Rebound; Platinum Rally Pauses

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Gold Slips on Dollar Rebound; Platinum Rally Pauses

Gold slipped on Friday as the dollar rebounded, while platinum took a breather after expectations of a rebound in industrial demand drove a rally to a more than six-year peak and put it on course for its best week in two months.

Spot gold fell 0.6% to $1,815.30 per ounce by 1009 GMT.

U.S. gold futures slipped 0.5% to $1,816.90.

The dollar edged up 0.2%, reducing gold’s appeal for other currency holders.

“The inverse relationship between gold and the dollar has been strong recently and the rebound in the dollar has had a negative impact,” David Madden, market analyst at CMC Markets UK, said.

Strength in European shares, which are set for a second consecutive week of gains, also weighed on safe-haven gold.

Still expectations for a stimulus package in the United States helped to put gold prices on course for a 0.2% rise this week, which would be its first weekly rise in three. Investors often buy gold to hedge possible risks of inflation that could be spurred by massive stimulus.

“Our thesis for the next year or two is that equities and gold are going to do well because of inflationary expectations and monetary and fiscal stimulus remain supportive for both,” said Hitesh Jain, lead analyst at Mumbai-based Yes Securities, adding that the metal could rise to $1,950 this year.

Spot platinum fell 1% to $1,222.47 an ounce after prices scaled a more than six-year peak of $1,268.88 on Thursday.

The autocatalyst metal was set for an 8.9% weekly gain, which would be its best since early December.

“Reports that some future and derivative exchanges have increased their margin requirements have put the brakes on the demand for platinum,” CMC’s Madden said.

But expectations for a rebound in industrial production and the automotive sector this year should lift the metal, he added.

Silver gained 0.2% to $26.99 an ounce and palladium rose 0.1% to $2,347.97.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Gold

Gold’s 10-Year Return Less than 2%; Global Demand for Investment Gold Plunged by 60% YoY

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During times of risk and market volatility, investors look for high-quality assets that can save their capital and minimize losses. History has shown many times that gold works as a good store of value in such times of uncertainty. However, the 10-year return for gold investments plunged deep below investors’ expectations.

According to data presented by BlockArabia, after turning negative in August, gold’s 10-year return rose to just under 2% this week.

A Sharp fall After Fantastic Return Rates in 2019 and 2020

For the last 50 years, gold has been the perfect stock market hedge, with its most impressive performance in the 1970s and 2000s. From 2000 to 2009, during the worst decade for the S&P 500 after the 1930s, the S&P 500’s annual return was just over 1%. At the same time, the gold investment return amounted to 18% per year throughout the entire decade.

According to St. Louis Fed data, positive returns on gold investments continued in most years during the next decade. In 2002, gold’s annual investment return hit 25.6%. Five years later, this figure jumped to almost 32%. After fantastic 2009 and 2010, the following years witnessed a negative trend, with the annual investment return for the precious metal reaching the deepest point of -27% in 2013.

Four years later, in 2017, the annual investment return recovered to 12.7%. Finally, in 2020, gold became an asset with the second-highest yearly investment return behind silver, bringing an average return of almost 25% that year, much more US stocks and corporate bonds or EAFE stocks.

However, statistics show that 2021 witnessed a sharp fall, with gold’s YTD investment return plunging to -7.37%.

Although 3-year and 5-year investment returns for the precious metal remained high, amounting to 46% and 31% as of this week, respectively, the 10-year return dropped significantly over the last two months. On August 10, it amounted to -6.56% and then slipped to -7.54% in the first days of September. Statistics show this figure manager to recover a bit a hit 1.97% on October 4th.

Global Demand for Investment Gold Plunged by 60% YoY

Investors see gold as a ‘safe haven’ in times of market volatility, just like those triggered by the COVID-19. That is why global demand for investment gold surged to all-time highs last year.

In 2019, before the COVID-19 hit, the global demand for investment gold amounted to an average of 300 metric tons per quarter. By the end of March 2020, this figure jumped by 93% to 556 metric tons. The increasing trend continued in the second quarter of the year, with global demand for investment gold hitting over 584 metric tons, almost double the amount in the same quarter a year before that.

The World Gold Council data show the global demand for gold for investment purposes hit a record-breaking 1,140 metric tons in the first half of 2020, the highest figure so far.

However, the following months have witnessed a noticeable downsizing trend, with the figure falling to 138 metric tons in Q4 2020. Although global demand for investment gold recovered and hit 465.2 metric tons in the first half of 2021, that is still 60% less than in the same period a year ago.

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Gold Prices Rise as Soft Dollar Supports Safe-haven Appeal

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Gold prices firmed on Monday, propped up by a subdued dollar and slight retreat in the U.S. Treasury yields, with investors gearing up for a week of speeches from U.S. Federal Reserve policymakers for cues on the central bank’s rate hike path.

Spot gold was up 0.5% at $1,759.06 per ounce, as of 0400 GMT, while U.S. gold futures were up 0.4% at $1,759.00.

While the dollar index softened, the benchmark 10-year Treasury yields eased after hitting their highest since early-July. A weaker dollar offered support to gold prices, making bullion cheaper for holders of other currencies.

“Gold is still looking slightly precarious where it is right now, and it’s probably bouncing off key technical level around $1,750,” IG Market analyst Kyle Rodda said.

“Gold remains an yield story and that yield story is very much tied back to the tapering story.”

A slew of Fed officials are due to speak this week including Chairman Jerome Powell, who will testify this week before Congress on the central bank’s policy response to the pandemic.

“There’ll be a lot of questions being put to Fed speakers about what the dot plots implied last week and weather there is higher risk of heightened inflation going forward and that rate hikes could be coming in the first half of 2022,” Rodda added.

A pair of Federal Reserve policymakers said on Friday they felt the U.S. economy is already in good enough shape for the central bank to begin to withdraw support for the economy.

Gold is often considered a hedge against higher inflation, but a Fed rate hike would increase the opportunity cost of holding gold, which pays no interest.

Investors also kept a close watch on developments in debt-laden property giant China Evergrande saga as the firm missed a payment on offshore bonds last week, with further payment due this week.

Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, increased 0.1% to 993.52 tonnes on Friday from 992.65 tonnes in the prior session.

Silver rose 0.9% to $22.61 per ounce.

Platinum climbed 1.3% to $994.91, while palladium gained 0.7% to $1,985.32.

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Gold Gained on Thursday as COVID-19 Variant Spreads

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Gold, the world’s number one safe-haven asset, rose by 0.3 percent to $1,774.39 per ounce on Thursday amid rising concerns over the spread of the Delta coronavirus variant.

The precious metal moved further away from a two-month low hit on Tuesday, gold might have called the bottom for the bearish trend started when the U.S Fed announced possible rates increase in 2023.

Rising cases of the Delta variant have prompted France to delay the easing of restrictions in the Landes region, while infections have also surged in Asia.

If the rise of the variant forces authorities to introduce new lockdowns, especially in Europe and the United States, then we may be looking at the risk-averse safe haven trade offering support to gold, Ricardo Evangelista, a senior analyst at ActivTrades.

Also on investors radar is Friday’s U.S. nonfarm payrolls that could provide more clues on timeline for Fed’s shift in monetary policy. The weekly jobless claims data is due later on Thursday.

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