(Kitco News) – The gold market is seeing some renewed technical buying momentum in the final month of 2020 after what was a dismal November.
February gold futures last traded at $1,816.20 an ounce, up 2% on the day.
Carsten Fritsch, precious metals analyst at Commerzbank, noted that gold price dropped 5.4% last month, its worst monthly performance in four years. The gold market saw continued selling pressure last month as investor sentiment was boosted by news of three potential vaccines for the COVID-19 virus.
Analysts have noted that the vaccines are shifting expectations that the global economy will see a faster than expected recovery from the devastating pandemic.
In further evidence of shifting investor sentiment, as gold saw its worst month since November 2016, equity markets recorded their best monthly gains since 1987. The Dow Jones Industrial Average broke new highs above 30,000 points.
Fritsch noted that gold-backed exchange-traded funds (ETFs) have been the key driver behind gold’s disappointing price action as headwinds pick up.
Quoting data from Bloomberg, Fritsch said that 100 tonnes of gold flowed out of ETFs last month, the first month of outflows in a year and the most significant drop in four years.
“Recently, outflows were registered on 14 out of 16 days of trading. Yesterday saw a further twelve tons of outflows. ETF investors have thus become a negative factor for the gold price after their purchases had previously driven up the price between April and August,” he said.
Although investor demand has weakened in the last few months, Fritsch said that other vital sectors of the market are starting to pick up, particularly in critical Asian markets.
“News from India offers a glimmer of hope,” he said. “Gold demand there apparently picked up noticeably last week on the back of lower prices. A revival of physical demand in Asia would make an important contribution to stabilizing the gold price. And in turn, it would need to stabilize to restore the badly-shaken confidence of ETF investors in gold.”
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