It is hard for gold to resist the combined impact of a stronger USD, higher yields, and robust equity markets, as this is a powerful bearish cocktail, according to James Steel, Chief Precious Metals Analyst at HSBC.
“Added to this, physical demand is not especially strong. US Mint sales of American Eagle gold coins totaled just 6,000oz in June. This represents a 92% decline in gold coin sales compared to June 2016 and brings total gold coin sales for the year to just 192,000oz. This denotes a profound drop in retail gold demand. Gold may be thrust down to nearer USD1,200/oz before the selling effort abates. Still we believe the rise in yields is at least largely factored into gold prices and so further rises may not have the same negative impact on gold.”
“Also gold may benefit if higher yields begin to weigh on equities. HSBC FX strategists anticipate a weaker USD eventually, but until the USD moves onto the defensive gold may be pressured. That said, we believe USD1,200/oz offers good near-term support. A move to or below that level may stimulated emerging market demand and encourage price sensitive purchases.”