Market Watch: Why Gold Prices May Have Already Bottomed

Article by Myra P. Saefong on Wall Street Journal Market Watch

Gold prices may already have hit bottom for the year after declining for the past six months in a row—the longest streak of losses in nearly three decades.

Lower prices have contributed to a boost in global central-bank purchases of gold. Other signs of a potential bottom for the metal include recent consolidation in the metals mining sector, which can mark a turnaround for the market.

“I do believe gold has either reached a floor or is pretty close to one,” says Jeff Wright, executive vice president of mineral exploration company GoldMining Inc. noting that central-bank gold reserve purchases were the strongest in three years.

Central banks didn’t buy more gold just because of the price decline. “Questions on U.S.-China trade ramifications [and] Brexit” helped boost demand for haven gold, says Wright. The preliminary U.S., Mexican, and Canadian agreement recently announced should also temper the U.S. dollar’s strength, which may ease pressure on dollar-denominated gold prices, he says.

Global central banks added a net total of 193.3 metric tons of gold to their reserves in the first six months of this year, up 8% from 178.6 metric tons in the same period a year earlier, according to the World Gold Council, or WGC. That marked the strongest central bank gold purchases in the first half of a year since 2015.

Poland, in particular, grew its gold reserves by 1.9 metric tons in July and by 7.5 metric tons in August, WGC says. Those are not large amounts, “but normally, European central banks sell gold, not buy it,” strategists at Macquarie wrote in a September note, adding that this would mark Poland’s first gold purchase since 1998.

Evaluating the rise in central bank gold buying, Natalie Dempster, managing director of Central Banks & Public Policy for WGC, says the move “reflects a combination of factors, including the desire by some countries to de-dollarize in response to political motivations and changing global trade patterns.”

Consolidation in the mining sector also suggests that gold prices are headed for a bottom, says Frank Holmes, chief executive and chief investment officer at U.S. Global Investors. Late last month, Randgold Resources and Barrick Gold announced plans to merge in an all-share deal to create an $18.3 billion gold-mining giant. “Consolidation at this level has historically been a sign that we’re nearing a bottom,” says Holmes.

To read this article in its entirety in Wall Street Journal Market Watch, click here