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 thirty years.
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. Gold futures fell in September and they haven’t posted a monthly gain since March. Year to date, prices have lost about 8%, settling at $1,202.90 on Wednesday.
Many do believe gold has either reached a floor or is pretty close to one. The fact that central-bank gold reserve purchases were the strongest in three years. The most active gold futures contract dropped to a settlement of $1,184 in mid-August, the lowest in 19 months.
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. 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.
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 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, reflects a combination of factors, including the desire by some countries to dedollarize 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. Late last month, Randgold Resources (GOLD) and Barrick Gold (ABX) announced plans to merge. Consolidation at this level has historically been a sign that we’re nearing a bottom.
In addition to those potential price pressures, gold has historically suffered its worst monthly performance of the year in October. Dow Jones Market Data shows a decline of 1.27% in gold prices, on average, for that month, based on data going back to 1990.
But the trend of gains in the dollar this year may soon shift, offering a lift to gold. Given the plethora of global wild cards potentially in play, it would not surprise me to see gold challenging recent highs in the $1,350 range in coming