Gold starts the second half on more stable footing

After a disappointing performance in the second quarter, and a decline in general sentiment towards the precious metal, investors will be hoping the worst is over.

The second quarter of the year saw the price of  gold drop by 22.5%, as the historical link between the distressed equity markets and the commodity’s reputation as a safe-haven investment became more tenuous. Part of the reason for this association weakening is the volume of negative news that has emanated from the European Union, with the underlying traders becoming slightly immune to it. The knock-on effect of this has been a reduction in portfolios allocated to the precious metal. This has been confirmed with the news that net long positions in gold futures have dropped by 20%, whereas short positions have grown by 5%.

Looking at the chart, last week’s dip below the $1200 level will have worried many. It could easily have serious ramifications, as a number of mines are likely to be deemed unviable operations if the price should linger under this level. How direct the effect on the traded price of gold would be if there was a drop in supply is difficult to assess, as such a large amount of the daily volume is from ETFs. It would not do it any harm though.

Spot gold chart

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