The yellow metal has staged an extraordinary comeback since December 2015 when gold hit its nadir at $1045 per ounce. The rally in the precious metal’s price extended over 20 percent in the months that followed. The gold spot price at the time of writing was $1,254.70 per ounce, not very different from monthly average gold price shown in the illustration up until May 30, 2016.
Where does gold go from here? Global economic conditions are tormented with uncertainty; interest rates are at record lows with recovery being indescribable. One reason for the recent gold rush is that around a third of the world has a negative interest rate policy, which means that the cost of carry for gold is as low as it has ever been. Gold has always been a hedge against a lot of risks in uncertainty, and the current global situation is no different.
Hence, weaker dollar, dwindling economic growth and negative interest rates drove investors towards the safe haven, stepping up the demand for the precious metal. The latest quarterly gold demand assessment by World Gold Council shows that gold demand rose by 21 percent year-on-year to 1,290 tonnes in the first quarter of 2016, making it the second biggest quarter on record in terms of demand.
World Gold Council has also highlighted in its quarterly assessment that the ongoing market uncertainty and unconventional monetary policies will continue to drive demand by investors and central banks. While the growth in gold demand has primarily propelled from investors and central banks, jewellery demand has witnessed a difficult quarter owing to a weakening Chinese economy and a strike by Indian jewellers, which has just been called off.
So, a common call for gold by experts and analysts across the globe is the opportunity for a continuing upside for the next three to four months, at least. Investors are likely to remain cautious as US dollar fluctuates amid the uncertainty over interest rate hike. Brexit adds spice; if the UK votes to leave, the immediate reaction will be heightened uncertainty not just for the UK, but also the EU and the wider global economy, and hence there may well be a flight to safety assets like gold. And gold demand remains strong due to importing nations like India and China.
Where some are of the view that bears in the commodity market are now looking in the rear-view mirror with gold being one of the commodities, there are others who voice factors that might result in gold losing its shine earlier that even expected, like the possibility of Fed raising rate twice this year, and improvement in growth rates in US, the developed world, and China.
