Investors Pull Out From Gold And Pool In Other Assets

 Compared to last year, the first quarter wasn’t that interesting for gold. However, the yellow metal showed a decent start to the second quarter. Gold prices were seen moving up around  1.5% last week. It ended close to the $1760 an ounce, we closed for the week. As the week opened, Gold prices fell on Monday, weighed down by firmer U.S. Treasury yields and dollar after better than expected U.S. economic data lifted prospects for higher inflation. Spot gold fell 0.2% to $1,739.20 per ounce.

Stronger than expected data suggests that inflation (will be) picking up faster than expected in months to come, which is leading to a rise in real yields, exerting pressure on gold. If we do get flaming inflation readings next week, it could be a catalyst for higher Treasury yields, which would be bad for gold. But once we pass that event and if gold would still near $1,750, that would be a green light for prices to rise higher. There could be more upside potential for gold after the CPI data.

The gold dealers in India remain optimistic as the gold prices might have already hit their bottom in the first quarter of this year. In that case, we can expect a favourable environment for gold to rose. The Fed removed the big risk as far as yields surging. This will act in favour of the yellow metal. And even though we might not see the August record highs, gold could make a move towards $2,000 again.

We have a line up of data releases this week, which might catch investors attention-

• CPI
• U.S. jobless claims
• Retail sales
• NY Empire State manufacturing index
• Philadelphia Fed manufacturing index
• Industrial production

Other supportive drivers for gold are- 

Stronger physical demand - Since the onset of the pandemic, gold has also seen an uptrend. A few minor drops were witnessed, but overall it has been a green zone gold. High demands amongst the Chinese and Indian coupled with renewed interest from central banks have all delivered sufficient support for the yellow metal.

Piling gold reserves by central banks - With 2021, the gold dealers in India and largest bullion dealers in India expect that the new year will bring a global economic rebound, "The possibility of capital inflows into emerging markets and the low interest-rate environment may lead to central banks adding gold for diversification purposes The breadth of central banks purchasing gold could potentially rise substantially considering the massive increase in sovereign debt and the rapid pace of money supply growth in reserve currency countries. A sustained rise in official interest could provide further support for the yellow metal.

Furthermore, domestically, the top gold dealers in India are expecting that Gold and Silver could become expensive from the current levels on two counts. With the international prices going up, the resurgence of the Coronavirus Pandemic could drift investments towards this haven, resulting in the increasing demand for gold.

However, we still find some players in the market who are pulling out from gold and pooling into equities, cryptos and other asset forms. But as many say that crypto is a bubble and if this bubble pops then it will be a huge and significant game changer for gold. But to be sure, this is technically not possible. All we can say is that if at all the bubble bursts then $2250 an ounce for gold will be a cakewalk.

Gold Loses Shine But Later Gains Lustre

 Gold was seen gearing up for another leg to the upside, as the bulls extended the recovery from three-week troughs of $1677.

Bullion has clawed back some ground after dropping last week to near the lowest level since June, with recent movements largely being dictated by the direction of bond yields

The weakness in the US dollar and Treasury yields continued to lend support. However; traders believe that the improved market mood on the economic optimism plays could likely play a spoilsport.

Gold steadied as investors weighed signs of an economic rebound amid better-than-expected U.S. jobs data against the implications of President Joe Biden’s spending plans.

U.S. employers added the most jobs in seven months with improvement across most industries in March, as more vaccinations and fewer business restrictions supercharged the labour market recovery.

The U.S. economy created the most jobs in seven months in March as more Americans got vaccinated and the government doled out additional pandemic relief money.

• Nonfarm payrolls increased by 916,000 last month
• February employment was revised up to a 468,000

Following these data numbers, gold dealers in India witnessed the first quarterly drop in the price of gold since 2018. A growing economic recovery and rising bond yields created bearish sentiments for the yellow metal.

We’ve already seen a $1.9 trillion helicopter money drop this year, and the Biden administration appears just to be getting started.

The latest reading of the government’s CPI (Consumer Price Index) continues to suggest that inflation so far remains low. Even if we do experience high inflation, government officials continue to assure, it will be transitory. Despite these weak guarantees, the financial establishment is starting to sound the alarm.

U.S. President Joe Biden's announcement of a long-awaited $2 trillion-plus job plan last week has raised some concerns over inflation.

The ongoing threat of inflation – and actual inflation – will result in more buying of gold, silver, and other hard assets. Especially since Fed Chief Jerome Powell has said that the central bank would be happy to allow inflation to persist for a while before taking any action.

This means that the central bankers will not hike interest rates or pull back bond purchases to slow things down. And when government-reported inflation rises well above 2%, while interest rates remain at lower levels, the resulting negative real interest rates will support gold prices.

This inflationary scare comes at a time when the government is allowing running free massive stimulus measures to bail out states, businesses, and consumers – all in the name of combating the pandemic.

During these times, some investors view gold as a hedge against inflation and hence the drop was not much lived.

Gold once again gained momentum as this week opened, over the following reasons – 

Yields- The benchmark 10-year US Treasury yields have slid below 1.7% after rising to the highest level seen in 14 months over the past few sessions. This has also turned the dollar bearish, sending it to an almost two week low against most of its major rivals. While lower bond yields decrease the opportunity cost of bullion and make it more appealing as an investment, a weaker dollar drives up purchases of gold and gold coins in Mumbai by holders of other currencies, helping push up its demand as a result.

Corporate taxes- The yellow metal is also trading bullish on the rising prospects for higher corporate taxes in the US after President Biden stood by this proposal as a way to pay for the recently announced $2 trillion infrastructure plan. Additionally, the precious metal’s safe-haven appeal also enjoyed support from recent comments from Cleveland Fed President Loretta Mester on the central bank’s plans to remain dovish to boost economic growth further.

Meanwhile, traders are also watching the progress of debate over Biden’s $2.25 trillion infrastructure proposal, as Republicans expressed guarded support for a more limited plan. Any progress in these talks will directly affect gold and gold coins in India. Whether on the upside or downside- we need to wait and watch!