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The third quarter was another ugly one in the gold market. But at least it offered investors a little bit of encouragement.
Gold dropped 4.8 per cent overall in Q3, closing at US$1,115 an ounce on Wednesday after bottoming out at US$1,080 in July. It was the metal’s worst quarterly performance in a year. But Q3 was really a tale of two halves in the gold market: before and after China devalued its currency on Aug. 11.
Before that date, sentiment on gold was at its weakest point in years. With a strong U.S. dollar, low inflation and expectations of monetary tightening by the U.S. Federal Reserve, investors had little motivation to own gold or other precious metals.
But after Aug. 11, it was one of the only commodities to draw any excitement whatsoever.
China’s devaluation caused panic, as investors feared that its economy was in far worse shape than previously assumed. That triggered a broad equity market sell-off around the globe. Commodities also fell sharply, as demand for them is linked so closely to China’s economic growth.
But gold prices went up. For the first time in many months, gold reclaimed its traditional role as a safe haven in periods of high volatility. It held its own even though the U.S. dollar also remained strong. And with concerns about China remaining in the forefront and the Fed holding off on a rate hike yet again, some investors are getting increasingly optimistic about the precious metal.
But most market watchers remain extremely cautious in the short term.
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