By Mr. Prithviraj Kothari, MD, RSBL
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.
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The primary purpose of this article by Mr. Prithviraj Kothari is to educate the masses of the current happenings in the Bullion world.
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"Why Gold Is Sill Cheap"
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