Gold has returned fashionable as investors seek out a secure haven amid growing global volatility.
The real question is whether this gold rally will have legs, or whether it will fizzle out like numerous others over the past few years.
The precious metal is in the midst of the tremendous upward move, jumping 18 percent since the oncoming of 2016. The important thing gold futures contract rose by a whopping US$53.20 an ounce on Thursday alone, bringing it to US$1,247.80. Gold’s performance this year may be the polar complete opposite of most other commodities, that are down sharply.
Gold’s surge may come as global equities tumbled into a bear market. On Thursday, stock indexes worldwide fell on fears within the health of the global economy and banking sector, with MSCI’s world stock index dropping to more than 20 percent below its peak, while safe-haven 10-year Treasury yields hit their lowest since 2012.
Several factors will work in gold’s favour: In addition to wobbling markets, central bank gold buying is rising and also the U.S. dollar is weakening as investors are increasingly doubtful the Fed will raise rates of interest as much or as soon as previously assumed. Those doubts gained steam after chairman Janet Yellen’s remarks to Congress now, by which she took a cautious tone around the economy.
Over recent times, the consensus view from Goldman Sachs along with other Wall Street banks was that U.S. interest rate hikes were imminent and were poised to crush the gold price. That drove many generalist investors out of the market, and they’re only starting to take an interest again.
Franco-Nevada Corp boosts size share sale by 45% following Glencore Plc dealGold’s increase in January bodes well for commodities for rest of 2016Barrick Gold Corp has returned on the top as Canada’s best-performing stock and also the world’s most valuable gold company
“The expectation that gold was going to be completely passed on the back of Fed interest rates hikes appears like it’s not going to happen,” said Sean Boyd, leader of gold mining giant Agnico Eagle Mines Ltd. “People are saying they need some protection and therefore are revisiting gold.”
Boyd asserted as the rate hike thesis became ingrained, traders massively shorted gold and overwhelmed any bullish signals on the market. That encouraged investors to dump their holdings. Since the eye rate thesis is changing and investor sentiment has turned positive, he is hopeful that gold is poised for a sustained upturn.
Some of the gold fundamentals are clearly bullish. The planet Gold Council reported on Thursday that overall gold demand grew four percent within the fourth quarter of 2015, while central bank demand jumped 25 %. Mine production dropped the very first time since 2008.
Investors have been buying gold aggressively to date this year through exchange-traded funds, which added close to 100 tonnes of gold as of Feb. 4. ETFs shed a staggering 880 tonnes in 2013, which drove prices down.
The bullion rally has provided an enormous boost to Canadian gold mining stocks, which were up overall on Thursday. Kinross Gold Corp.’s shares rose 14 percent, Barrick Gold Corp.’s shares rose four percent, and B2Gold Corp.’s shares jumped 14.5 percent.
Despite the recent gold euphoria, questions remain about the sustainability of this rally. Gold also moved higher in the first quarters of both 2014 and 2015, but could not keep that momentum for more than a couple weeks. Many experts believe the same thing will happen now. Goldman Sachs, for one, remains skeptical – this week, it predicted prices would drop to US$1,000 an ounce by the end of 2016.
But Martin Murenbeeld, chief economist at Dundee Capital Markets and a close follower from the gold market, believes this rally is different. He noted those prior two moves were tied to specific geopolitical events: Russia’s seizure of Crimea in 2014, and the Greek election in 2015.
“There’s no specific crisis today that one could say is pulling up gold, so that as soon because it dissipates that gold is off,” he said.
“What looks to become happening may be the U.S. dollar is allowing this to continue. When the dollar rolls over, gold will do much better.”