Gold futures prices have been on a sustained downward trajectory, bringing the value of related assets into focus for potential allocation.
As of June 23, the August gold futures contract on the COMEX has been declining for several consecutive days, with its latest price at $4,133 per ounce.
Analysts hold differing views on the reasons behind the fall in international gold prices, but they generally concur on the opportunity to strategically allocate to related assets such as gold stocks, gold funds, and gold futures.
The COMEX August contract has been falling steadily since reaching a recent high of $4,403 per ounce on June 17, and has now dropped below the $4,200 per ounce mark. Concurrently, domestic gold futures in China have also shown weakness, with the main 2608 contract falling below the 900 yuan per gram level to settle at 897.9 yuan per gram.
An analyst from a futures firm's investment advisory department pointed to two primary reasons for the persistent decline in international gold futures. First, a shift in market expectations regarding Federal Reserve policy, where earlier anticipation of imminent rate cuts has largely dissipated due to stronger-than-expected U.S. macroeconomic data and inflation, leading to a rise in the U.S. dollar and Treasury yields, thereby increasing the holding cost for gold assets. Second, a moderation in geopolitical risks has led to a significant cooling of safe-haven demand, removing a key support for gold prices. The analyst cautioned that, in the short term, gold futures have not yet bottomed out, and the risk of attempting to buy the dip remains relatively high.
In contrast, a precious metals analyst from another firm offered a more optimistic view. This analyst believes that as geopolitical risks ease and crude oil futures continue to retreat, inflationary pressures in overseas markets are expected to decline further, gradually creating conditions conducive for the Federal Reserve to cut interest rates. The analyst suggests that the current gold price is nearing the end of this adjustment phase and may be poised for a new round of upward movement in the near term.
Looking at domestic gold futures positioning, long positions in the main contract still exceed short positions, although the enthusiasm for adding long positions has waned. Data for June 23 showed that the top twenty holders held 107,600 long contracts, a decrease of 690 from the previous session, while short positions stood at 37,100 contracts, an increase of 3,244. Daily trading volume reached 327,000 contracts, up by 160,000 from the prior day.
The first analyst advised investors to differentiate their approach to various gold-related assets. For gold ETFs and physical gold bars, which are suitable for ordinary investors as a foundational holding, a gradual, phased buying approach during price declines is recommended over making a single, large investment. Gold stocks, exhibiting much higher price volatility than physical gold, have seen their prices decline more sharply in this correction. They may be suitable for investors to participate lightly in a potential rebound after gold prices stabilize, but are not ideal for heavy, long-term holdings. Regarding leveraged derivatives like gold futures, due to their high risk and amplified volatility in the current high-volatility environment, they are generally not suitable for ordinary investors. Overall, the analyst suggested that holding gold-related assets at around 20% of one's total portfolio is reasonable, with opportunities to increase allocation later as price signals become clearer, noting that medium- to long-term allocation value remains.
Looking ahead, the second analyst maintains that after a full adjustment, international gold prices are poised for the next phase of recovery. Furthermore, market dynamics may shift as gold stocks adjust, potentially reversing the recent pattern of stronger stocks and weaker gold. From a technical perspective, there are signs that precious metals futures, including gold, may be forming a temporary bottom. Once the current wave of concentrated selling subsides, international gold prices could potentially embark on a new upward trend.
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