Gold’s slide stalled by bullish investors buying the dip

In Bangkok’s Chinatown, Thailand’s gold trading hub, 57-year-old textile worker Sunisa Kodkasorn was certain that the decline of bullion since last week was only a short-term dip.

Gold bars are pictured at the Godot and sons gold buyer store on July 29, 2020 in Paris. Photo by AFP

"Gold is the best investment," she told Bloomberg. "We decided to gather all our money and come today because we knew prices had dropped."

However, she could not buy the dip as her preferred gold bar size was sold out.

All over the world, dealers report a surge in interest from buyers capitalizing on last week’s price drop.

In Japan’s Kyoto, nearly 1,000 gold traders, brokers, and refiners have gathered for the largest annual precious metals conference, which began Monday. Despite recent caution, professionals remain enthusiastic, with record attendance at the event.

"Bull markets always need a healthy correction to weed out froth and ensure the cycle has duration," Nicky Shiels, head of research at Malaysia-based trading company MKS Pamp, said in a note to clients on Oct. 6.

"Prices should consolidate and revert to a more measured bullish trajectory."

Gold reached its high of just over US$4,381 per ounce late on Oct. 20. The following day, it plummeted by up to 6.3%, marking the largest single-day drop since 2013.

By Monday, gold continued to slide, dropping 1.1% to US$4,070.31 per ounce, driven by reduced safe-haven demand amid progress in U.S.-China trade talks.

The drops, however, did little to dampen enthusiasm in major gold-buying hubs. While some dealers noted a slight dip in interest after two hectic months, others reported record sales.

Some analysts believe that the corrections are necessary to help stabilize prices and prepare the market for further gains.

"The bull market is far from dead; instead, it's just taking a bit of a breather," said Michael Brown, Senior Market Analyst at Pepperstone, as quoted by financial news platform Kitco.

"What we’ve seen in recent trade looks to be the culmination of a parabolic rally that went too far, too fast, and ultimately ended up pulling back in aggressive fashion, as new longs bailed and those who’ve been in the trade for some time sought to book profits."

Neil Welsh, head of metals at Britannia Global Markets, said that the market was long overdue for a cooling-off period.

"Gold’s recent volatility looks more like a constructive correction than a reversal," he said.

Dealer’s data confirm that many investors are picking up bullion at lower prices. Pete Walden, deputy chief executive of Singapore’s BullionStar, said Oct. 21 was their busiest day ever, with "a queue before opening, with many more buyers than sellers."

"I think many are using it as an opportunity to buy the dip," he added, as quoted by Bloomberg.

In Tokyo’s Ginza district, Vietnamese student Hang Viet, in his 20s and a decade-long Japan resident, visited Tanaka Precious Metal to purchase a small gold bar.

"I believe gold prices will keep rising in the long run. I saw the current dip as an opportunity," he said.