The precious metal is currently trading around a 10-month low against the US dollar in an environment where several US rate hikes are expected next year.
For several days, gold has stayed above $1130, setting up a base. The tail risk for US dollar is important. In our view, there is a decent probability that the XAUUSD will retrace within the next few weeks. Looking back to this time last year, the outlook for a US normalisation was optimistic and as the Fed had failed to deliver, it triggered one of the greatest first halves in 40 years.
Fundamentally, the gold industry is not looking great. Far from the outlook that seemed at first glance negative for next year, gold production is also on its way down. Miners are not finding the same quantities as they did a decade ago. More specifically, the discovery of gold has declined by 85% since 2006. It is also becoming more complicated for mining companies to dig up the yellow metal.
Nonetheless the scarcity of gold is not as close as the yearly gold output accounts for less than 2% of the gold that has been ever produced which in reality implies that there is definitely room for metals to get back into the market.
Yann Quelenn is a market analyst at Swissquote Bank