The price of gold decreased by 1% on Monday (5 August), falling below $2,400 per ounce (oz) for the first time since July.
The metal appears to be caught up in a global market sell-off of raw metals. The spot gold price fell by as much as 3.2%, and spot silver by 5.1%, according to Reuters, although the gold price recovered by market close. The metals sell-off also affected the prices of platinum and palladium. The price of platinum fell by 4.9%. Palladium fell by 5.7% to $839.50/oz, its lowest price since August 2018.
Weak economic data from the US and a risk of the country falling into a recession has led to a global sell-off of raw metals, with sellers attempting to recoup as much money as possible.
Gold is considered a politically dexterous metal, meaning its price cannot be altered by banks or governments. As such, even a 1% fall in price is incredibly significant.
David Meger, director of alternative investments and trading at High Ridge Futures, commented: “What you are seeing is just risk assets across the board under pressure this morning and gold is falling prey to that same pressure."
The falling gold price is only expected to be temporary. Last month, the World Gold Council published its Gold Demand Trends report for the second quarter (Q2) of 2024, which stated that demand for gold increased by 4% year-on-year. This is the strongest Q2 result in the World Gold Council’s data series.
Demand for gold was supported by healthy over-the-counter (OTC) transactions, which increased by 53% year-on-year, according to the trade association.
The demand for OTC transactions increased as a result of continued buying from central banks and a slowdown in Exchange Traded Fund outflows, it said.
Central bank purchases, rising Chinese retail demand, geopolitical turbulence and the expectation of interest rate cuts as inflation decreases globally are all factors contributing to increasing gold prices.
Central banks across the world added more than 1,000 tonnes (t) of gold to their reserves in both 2022 and 2023. The People’s Bank of China was the largest buyer, acquiring 225t of gold last year.
The gold price averaged a record $2,338/oz in Q2 – an 18% increase year-on-year – reaching an all-time high of $2,483/oz on 17 July.
With gold’s politically dexterous reputation, it is considered a secure investment during market uncertainties. Forthcoming economic and political volatility as well as expected interest rates cuts from the Federal Reserve should benefit the sale of gold bullion.
Louise Street, senior markets analyst at the World Gold Council, said in July: “The rising and record-breaking gold price has made headlines as strong demand from central banks and the OTC market supported prices, which has been a consistent trend throughout the year. The OTC market has seen continued appetite for gold from institutional and high-net-worth investors, as well as family offices, as they turn to gold for portfolio diversification.”
