Gold, one of this year’s best performing assets, has room to extend its advance, according to top-ranked forecasters, even as the rebound shows signs of losing steam.
While we see gold being one the best performing asset in its class in 2016, we also this year to be one of the best performing years for gold in the past 3-4 years.
Bullion had its best quarter in almost three decades through March after the metal regained its haven status amid volatile financial markets, the spread of negative interest rates and as the Fed pared back expectations of further rate increases. Holdings in exchange-traded funds have climbed about 20% this year and there appears to be a return of confidence.
While gold has strengthened since the start of the week, putting an end to last week’s selling pressure, it has underperformed the rest of the precious metals as speculative positioning is overstretched on the long side
When markets are volatile and sentiments are confusing, we see more than ne factor influencing the prices. The same has happened with gold. This week there was more than one factor that as responsible for the ups and downs in gold. Let’s have look at each of these individually.
ETF- In paper holdings, gold ETF’s tracked by Fast Markets remain near their 2016 high – stood at 1,806 tonnes as of April 21. Investors poured $13.6 billion this year into exchange-traded products tracking precious metals, data compiled by Bloomberg show. That’s almost 80% of the total inflows into commodity ETFs in 2016. This gave a boost to gold prices.
ECB- On Thursday, the outcome of the European Central Bank meeting was as expected when it kept its current monetary programme unchanged.
The gold price was relatively flat during Asian trading hours on Friday after the European Central Bank (ECB) kept its monetary policy unchanged at its Thursday meeting as expected.
Spot gold was last at $1,250.00-1,250.20 per ounce on Friday, up just $0.50 from Thursday’s close.
But ECB president Mario Draghi warned that deflationary signals remained despite negative interest rates and billions of euros in asset purchases, while economic growth stays “tilted to the downside”.
In March, the central bank lowered nominal interest rates further into the zero-bound, citing concerns of deflationary pressure and a divergence between the northern and southern economies.
Dollar– Gold held its ground despite a stronger US dollar following the unexpected fall in US unemployment figures. With ECB policymakers holding interest rates unchanged, there was little to excite investors,” said ANZ Research on Friday morning.
The US dollar index had recovered to a three-day high of 94.70 on Thursday, but slipped 0.15 percent to 94.49 so far on Friday
Gold futures dipped Friday morning in the US, with a strengthened dollar and increased risk tolerance combining to weigh on prices.
US Report– in US data released Thursday, weekly unemployment claims between 7-14 April came in at 247,000 below the forecast of 265,000 and the lowest since November 1973.
The Philly Fed manufacturing index, however, was at 1.6, a stark divergence from the 8.1 estimate. The CB leading index month-over-month in March slipped to -0.2 percent, off the estimate of a 0.4 percent uptick.
Other markets- demand concerns in China and emerging markets weighed on global growth.
Earlier, Japan’s reading came in at 48, below the previous figure of 49.1, while PMIs from across the Eurozone were mixed.
Turning to International markets, Germany’s DAX and France’s CAC-40 were down 0.6 percent and 0.5 percent respectively, while the dollar strengthened 0.4 percent to $1.1253 against the euro.
While the current risk-on environment – evident in stronger equities and lower volatility – is exerting downward pressure on safe-haven demand, bullish factors like a weaker dollar and stronger oil price continue to prevail.