De-risking and position reduction is affecting gold

J.P. Morgan analyst Michael Jansen addressed the recent gold price weakness in a note to clients, writing that “Why is gold weakening given events in Europe and building global inflationary pressures? Seasonally, gold tends to struggle late in Q2 and into early Q3. We think another reason is that general de-risking and position reduction is affecting gold, even if less so than the other precious and industrial metals.”

Jansen went on to say that “the USD is consolidating to a point that it may be encouraging profit taking on long gold positions…thirdly, the slower growth environment and move to inevitable fiscal consolidation has seen inflation expectations reduced even though actual inflation is worse than anticipated. Overall we remain bullish but look for more short term softness. Key support is $1465-$1475.”

As for the U.S. dollar, while it has rebounded in recent months, on Monday it retreated 0.3% against a basket of foreign currencies. The greenback’s slide coincided with worrisome results of a UBS survey of central bank reserve managers. Over half the 80 respondents – who manage over $8 trillion in assets – predicted that the dollar will be replaced as the world’s reserve currency by a portfolio of currencies within the next 25 years.