Gold is here to stay

Gold was set for a decline last week over strong economic growth numbers. Last week, gold fell ahead of first-quarter earnings season as the dollar gained while the precious metal slumped to its lowest level of the month. Gold fell 1.23 percent at the close of Thursday’s trading session to settle at a price of $1.295.15. Nonetheless, analysts maintain that this is only a temporary setback.

Although equities are doing their part to weigh on gold in the near-term, it is just part of the story. Relative and resilient strength in the U.S. dollar is another factor weighing on the precious metal.

Gold was pulled down over strong economic numbers coming in from the Chinese economy-

• China’s economy expanded more than expected in the first quarter of 2019
• While industrial output and retail sales for March were also better than expected.
• Trade and credit data that came out last Friday also exceeded forecasts

Strong numbers coming in from China, imply that a global slowdown has been diminished to quite some extent. Furthermore, according to the minutes published at its last Federal Open Market Committee meeting, the Federal Reserve did leave open the possibility of possible rate hikes this year if the economic data suggests warranting such a move. This, of course, wouldn’t bode well for gold.
The minutes confirmed that if the economic data continue to support the economy, a rate hike could be on the table at the back end of this year. Luckily for the dollar bears, this wasn’t the majority view, at least, not for the time being.

Does this mean the gold will soon lose its sheen?

Well, gold is being supported by ongoing geopolitical issues (U.S.-China trade war and Brexit, among others), concerns around slowing global economic growth and recession fears, and a more dovish U.S. Federal Reserve (no rate hikes in 2019).
Though many investors are shunning gold and shifting focus to equities, there is a set of market analysts that still believe that gold needs to be added in ones portfolio as its gives an insurance cover.

A crisis is expected and it’s soon we realise that one needs to protect his/her finances in times of crisis. And which metal can best prove to be a safe haven asset other than gold?
Gold had faced a similar situation in 2011. Gold was widely ignored since 2011 as an asset class for institutional portfolios. In 2018, bullish sentiment for gold was at a multi year low. Not many people were interested in owning gold.

But then investors realised that they need to own gold in order to protect themselves in times of crisis.

Given the current situation and what is expected in the near future, we can say that gold is here to stay. Even though equities are rising, the momentum won’t sustain in the long run. Fed is not expected to hike rates in 2019. Less hikes and a rate cut would translate to dollar weakness–an open path for strength in gold. Other headwinds include increasing concerns of slowing global economic growth, which could spur a move to safe havens like gold.

And hence this is a very good time for people to get a little bit more defensive and use gold to reserve the wealth they have made in equities.

Gold declined but still a favorite

Since the turn of the century, the gold industry has experienced a roller coaster ride, with prices rising from $255 an ounce in 2001 to highs of $1,906 a decade later, before falling to $1,056 by December 2015. After a gap of almost 4 years, gold is being seen on the green path once again.

Lately, Gold prices have largely been stuck in a range of between $1,217 to $1,330. Though gold started the year on a positive note, last week it did witness a decline in prices.

The sentiments continued to flow in this week too. Gold prices slipped on Monday and they further slipped for a fourth straight session on Tuesday as recent upbeat economic data and signs that Washington and Beijing were making headway in a nearly year-long tariff skirmish boosted risk sentiment.

The main reason for the decline in gold prices were the data numbers coming in from world economies.

Pressures were created on gold as improved economic data came in from China. China reported better-than-expected credit and export figures last week that allayed concerns regarding the pace of economic growth.

• Coming to the U.S., the dollar held firm on Friday after strong U.S. labour and inflation data soothed concerns about the world’s largest economy. As we all know that dollar and gold are inversely related and hence a strengthening dollar pulled gold prices down.
• Furthermore, falling oil prices weighed on commodity-linked currencies such as the Canadian and Australian dollars.
• The number of Americans filing applications for unemployment benefits fell to a 49-1/2-year low last week, pointing to sustained labor market strength that could temper expectations of a sharp slowdown in economic growth.
• U.S. producer prices increased by the most in five months in March, but underlying wholesale inflation was tame.
• U.S. President Donald Trump on Thursday expressed a willingness to hold a third summit with North Korean leader Kim Jong Un but said in talks with South Korean President Moon Jae-in that Washington would leave sanctions in place on Pyongyang.
• European Union countries gave initial clearance on Thursday to start formal trade talks with the United States, EU sources said; a move designed but not guaranteed to smooth strained relations between the world’s two largest economies.
• The six-month delay of Britain’s exit from the European Union avoids the “terrible outcome” of a “no-deal” Brexit that would further pressure a slowing global economy but does nothing to lift uncertainty over the final outcome, the head of the International Monetary Fund said on Thursday
• Moreover, growing optimism over a US-China trade war resolution strengthened the dollar.
• Better economic conditions stoke investors to pivot towards equities that are interest-bearing assets, and shun the non-yielding bullion

But still gold is expected to perform better in the following months. Gold has been witnessing a great start in the current year and many market players believe that it will continue to do so in the near term-  mainly due to
• Concerns over global economy
• Geopolitical issues
• Federal Reserves less aggressive stance on interest rates. The view is that there won’t be any interest rate rises this year, which again will be supportive for the precious metals sector
• Global uncertainties
• Central bank buying
• US China trade war
• De dollarization

Gold is expected to garner safe-haven interest as investors look to protect themselves against an impending recession which might even push gold above $1400 an ounce by the second half of 2019.