Gold
has once again proved its worth and claims to be the best performing asset of
2016, emerging from a three-year bear market. The yellow metal has gained
almost 26% since 1 January, the best half-year performance since 1980,
Bloomberg data showed. Silver, following gold, rose 30% in the first six
months, leaving other assets such as the US and German bonds, Japanese yen and
the US dollar far behind.
The
flight to safe haven assets triggered by global political and economic
uncertainty has made bullion the year’s most preferred investment, with gold
and silver beating other asset classes by a mile.
The
past four sessions following the Brexit vote saw gold prices spike about 6%,
while silver advanced about 5%. Gold has definitely benefited from the Brexit
incident, but there have been reasons more than one that this yellow metal has
once again has got into limelight.
Global
economic uncertainty, slower growth in China, accommodative monetary policy of
the major central banks and weakness in dollar earlier this year had prompted
investments into safe haven assets like gold and silver.
Global Uncertainty:
The market continues to benefit from safe-haven investment flows in the
wake of the UK vote to exit the EU, which has led to heightened uncertainty
over global economic prospects and increased risk aversion.
Dollar:
Strength in the US dollar was the major contributor to weakness in gold
and commodity prices for the past few years. However, increasing uncertainty
about economic and political developments, low-to-negative interest rate
environment as well as doubts over global economic recovery post the collapse
of Lehman Brothers in 2008 have led to demand for precious metals, analysts
said.
China:
Economic slowdown of the Chinese economy has raised questions over the
global growth and development. These concerns have put an upward pressure on
gold.
Monetary Policy:
The current economic backdrop, along with fading prospects of an
interest rate hike by the US Fed at least till December validates further march
of bullion on the upwards trajectory over medium-term.
Contradicting
these prospects, the Jobs report released pulled gold prices down but not
significantly. The report stated that in June, 287,000 Americans entered the
labour market, far exceeding expectations of 174,000 while average hourly
earnings period ticked up 0.1 percent, below the forecast 0.2 percent.
Still,
the unemployment rate rose to 4.9 percent from 4.8 percent after the May figure
was revised down to 11,000 jobs from what was already a multi-year low of
38,000. The June employment figure had gained greater significance following
the disappointing May report, which suggested the US recovery was beginning to
slow after seven years of expansion.
It
was a session marked by extreme volatility on Friday with gold experiencing a
$35 range and silver $1.00, with NFP's driving price action. The prices send a
solid signal for the Gold price to move beyond $1400 in short to medium term.
Further
supporting gold was the Chinese gold reserves figures. It stated that China's
gold reserves stood at 58.62 million fine troy ounces at the end of June, up
from 58.14 million at the end of May, the central bank said on Thursday. Such a
stock up already appears to be in motion for the gold stocks.
Given
these supporting factors for safe haven metals, investors have engaged
themselves into purchases of gold and silver and this is further giving and
upward thrust to precious metals.
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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.
Previous blog:
Sharp increase in Silver prices: RSBL - http://riddisiddhibullionsltd.blogspot.in/2016/07/sharp-increase-in-silver-prices-rsbl.html
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