The phrase "how to buy gold" was, according to Google's data at the end of April, almost three times more frequently searched than at the beginning of this year. Interest in the gold market in the first quarter and at the beginning of the second quarter has definitely increased, especially among individual investors. One of the potential ways of having exposure to the increase in gold prices could be to buy a CFD.
As further data show, with the spread of the epidemic and its potential economic impact, investors were looking for safe assets. As a result, gold-backed ETFs attracted huge capital inflows, which resulted in the purchase of 298 tons of gold. This, in turn, brought global shares in these products to a new record level of 3,185 tonnes – according to the WGC report.
Compared to the first quarter of 2019, the growth of gold purchases by ETFs was staggering 595 percent. At that time, the demand for jewellery fell, while the demand for coins or bars was similar to that of early 2019. It is worth noting that due to the closure of economies, there were difficulties in the supply of bullion in any form. Gold production dropped to the lowest level in five years, equal to 795.8 tons. Therefore, investors could be interested in financial instruments giving exposure to gold. Central banks also continued to buy gold in significant quantities, although at a slower rate than in the first quarter of 2019. Net purchases amounted to 145 tonnes, according to World Gold Council data.
At this point it is worth recalling that the increase in gold prices continued with only small corrections from the second half of 2018. Therefore, we are dealing with a year and a half bull market, which raised the price of an ounce from 1200 to 1700 USD. At that time, financial investors and central banks dominated the market. Looking at the positioning of large institutions on the gold futures market, we may see that since mid-February they started to reduce their share in contracts allowing them to potentially profit from the price increase. In other words, it seems that we are dealing with the typical profit-taking after more than a year of the bull market, and when the demand from retail investors appears. The scale of the phenomenon is significant, as about 20% of all positions have been reduced.
What is more, it seems that large speculators in the market and futures contracts have begun to invest in price falls. Short positions, which may gain when the price of gold drops, have increased to the highest level since the beginning of March, according to data published by the US CFTC commission. Hence, the question from the title of this article seems to be justified.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
66% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trade this news from Conotoxia Ltd. platforms
Go to your account
