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Are Turkish banks adding to recent Gold losses, and when will the selling pressure end?

April 01, 2019 11:30

Economic Events Calendar

Source: Economic Events April 1, 2019 - Admiral Markets' Forex Calendar


Last Thursday, Gold saw another significant drop back below 1,300 USD. This move came as a surprise, particularly when taking into account the performance of 10-year US Treasury yields over the last few weeks.

Sure, one could argue that US yields seemed to have found a short-term bottom, but a rebound of a few basis points in yields does not seem to justify or explain an intraday drop of nearly 2% for the precious metal.

But there seems to be an alternate explanation: Turkey. Over the last week, Turkish lira swaps (cost of borrowing liras overnight) pushed to a never-before-seen level of 1,338%, mainly due to Turkish banks avoiding offering foreign speculators liquidity to bet against their domestic currency.

Despite potentially burning through their foreign exchange reserves, and searching desperately for liquidity, it seems realistic that Turkish banks also unloaded some of their Gold reserves, adding to the selling pressure in the precious metal last week.

While it is difficult to predict if and when this selling pressure is to dissipate, the overall fundamental picture stays bullish for Gold. But also from a technical perspective, another stint back above 1,300 USD remains an option as long as bulls hold Gold above 1,275/277 USD.

If the selling pressure diminishes, this is especially true. And if combined with a disappointing Retail Sales and/or ISM Manufacturing data set today, it could initiate a push back above the 1,300 mark in the coming days.

On the other hand: if Gold drops below 1,275/277 USD, further losses down to 1,240 USD becomes a serious option:

Gold index 4 hour chart

Source: Admiral Markets MT5 with MT5-SE Add-on Gold 4-hour chart (between January 14, 2019, to March 29, 2019). Accessed: March 29, 2019 at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2014, the value of Gold fell by 1.7%, in 2015, it fell by 10.4%, in 2016, it increased by 8.1%, in 2017, it increased by 13.1%, in 2018, it fell by 1.6%, meaning that after five years, it was up by 6.4%.

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