A week in gold: Equity rally removes some glister
London (Apr 16) Gold had a reality check this week as equity markets recovered with talk of ‘helicopter money’ being landed in Europe.
Gold had a reality check this week as equity markets recovered with talk of ‘helicopter money’ being landed in Europe.
Ahead of the US markets open, spot gold was trading around US$1,230 some US$30 lower than the week’s high on Tuesday.
The precious metal enjoyed its best quarter since 1986 in the three months to March as investors looked for alternatives to the increasing number on bonds with negative yields.
According to investment house Van Eck Global, the average yield on US$23trn of global sovereign bonds is below 0.7% for the first time in history.
A surge of money back into gold-backed exchange traded funds has underlined how gold’s appeal has been grown with economic concerns.
Holdings rose by 300 tonnes January to March, again the largest quarterly inflow since 2009 at the height of the credit crunch.
One area that has not joined in the buying spree, however, has been the consumer or physical market.
True, jewellers in India were on strike for three weeks in March but in China, the other main market, physical purchases fell 56% in the first two months of 2016.
UBS adds that in contrast to more positive investor sentiment, physical markets are in a soft patch right now.
“Physical buying is all but absent, while there continues to be scrap supply around,” said analyst Joni Teves.
These conditions are reflected in the London-Zurich location swap rates, she adds, while weak physical demand is likely also affecting gold rates.
Teves believes seasonality and the strike in India have played a part, but so has slower expected growth and weaker currencies across emerging market economies.
Even so, the broker argues that demand trends are broadly intact and while appetite may not be as impressive as it was back in 2013/2014, physical demand should be resilient, particularly those that are linked to culture and traditions.
In India, jewellery shops re-opened this week and wedding season is approaching, though there is still no resolution on the issue of the new 1% excise tax.
Conditions for farmers, big buyers of gold in India, are also looking more promising with El Nino conditions expected to diminish by June/July.
In China, Teves suggests it needs either a considerably deeper correction that would attract bargain hunters or a stronger and clearer uptrend that would attract momentum buyers.
“From a seasonality perspective, activity does not typically regain momentum until the third quarter, when restocking of bullion for the Lunar New Year holidays begins.”
Source: Proactive-Investors
