Gold and Silver Prices
Gold prices fell on Friday in response to positive employment data. Overall, the yellow metal ended the first quarter of 2016 up approximately 16%, its best performance in nearly 30 years.
“Gold fell more than 1 percent on Friday after U.S. payrolls data for March beat expectations, allaying some fears over the health of the U.S. economy and stoking speculation that the Federal Reserve may press ahead with interest rate hikes this year…The metal saw its biggest quarterly rise in nearly 30 years in the three months to March, rallying more than 16 percent as expectations faded that the Fed would move to normalise interest rates after their first increase in nearly a decade in December.
“’Generally this was a positive report, and therefore gold has now broken down," Societe Generale analyst Robin Bhar said. ‘It has been enough to see a bit of liquidation, maybe an excuse to take some profits given that we had a fantastic run-up in the first quarter…’
“The metal is sensitive to moves in U.S. rates, as a rise would lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar. ‘I don't think the market has to fear big interest rate hikes in 2016 from the Fed,’ LBBW analyst Thorsten Proettel said. ‘Overall monetary policy will be very supportive for gold….’” (“Gold slides more than 1 pct after U.S. data beats forecasts,” Reuters, 4/1/16.)
Gold ended the week up $5.70, closing at $1,222.90. Silver prices closed at $15.15, down $0.15.
Investors Betting on Gold – CNN Money
CNN Money reported that investors are flocking back to the yellow metal at a rate not seen since the 2009 financial collapse.
“An impressive $13.4 billion was poured into gold assets over the past 11 weeks, according to Bank of America Merrill Lynch. That's the largest sustained weekly inflow for gold since during the 2009 financial crisis. Gold is considered a safe asset that tends to rise in demand when people are worried about the economy or fear inflation. Gold skyrocketed earlier this year amid concerns of a recession…
“The fact that investors are still betting big on gold is interesting since markets have calmed down considerably. Recession fears have receded, and oil prices have stopped crashing. All of this suggests ‘uncertainty about the future and a concern that some nasty surprises might lie ahead,’ Barclays analyst Kevin Norrish wrote in a recent report.
“What kind of ‘nasty surprise’ might be on people's worry list? Many investors believe volatility will return later this year as the Federal Reserve attempts to raise interest rates. Others are concerned about unforeseen consequences linked to the experiments with negative interest rates by global central bankers in Europe, Japan and elsewhere.
“This week Bank of America flagged a new global risk that would likely help gold: stagflation. It's a nasty mix of stagnant growth, high unemployment and rising prices… Even though gold has already had a terrific 2016, Capital Economics believes the yellow metal has more room to run. The firm expects gold to rise another 10% before ending the year around $1,350 an ounce.” (“Investors are still betting big on gold. What do they know that you don't?” CNN Money, 3/25/16.)
Negative Interest Rates Double Gold’s Average Returns; May Significantly Increase Gold Demand – WGC
The World Gold Council issued a report this week finding that negative interest rates may dramatically increase gold demand from central banks and investors seeking to preserve wealth.
“Gold is on track to end the first quarter of the year with an important value increase of over 16%, and may soon climb even further thanks to a spike in demand from investors and central banks alike, a report by the World Gold Council shows.
“According to the document, released Thursday, negative interest-rate policies (or NIRP) for some of the world’s key central banks, such as the Bank of Japan and the European Central Bank, could change the way investors think about risk, benefitting the yellow metal.
“Long-term, says the gold industry body, NIRP may result in structurally higher demand for the precious metal from both central banks and investors. According to the WGC, gold returns tend to be ‘twice as high as the long-term average’ at times of negative real rates, and while ‘falling rates are generally linked to higher gold prices,’ rising rates aren’t always linked to lower prices, it says.
NIRP, the report notes, significantly reduces the likely pool of assets that investors may hold … The WGC also expects gold acquisitions by central banks to climb to record amounts this year and beyond. ‘The prolonged presence of low (and now even negative) rates has fundamentally altered the way investors should think about risk and may result in a broader use of assets like gold to manage their portfolios more effectively and preserve their wealth over the long run,’ the report concludes.” (“Negative rates to boost gold prices, demand to record highs – WGC,” Mining.com, 3/31/16)
Bullish Factors Continue to Support Gold – Brecht
Market analyst Kira Brecht identified several bullish factors which should continue to support gold.
“It's time to cheer… Gold futures surged 16.16% through April 1, second only to a powerhouse rally in the lumber market… Gold has been consolidating in recent weeks and is off its highs, but continues to hold above key support at the $1,200 per ounce level and the macro economic backdrop remains positive for the metal going forward.
“What's Next? Several key bullish drivers for gold remain in place, which should encourage long-term investors to support the market on price retreats. These include: Negative Rates: Going forward the current move toward negative interest rate environments by many of the world's advanced central banks remains a positive for the gold market…
“Global Debt Remains High: A number of the major economies around the world continue to ring up high levels of debt, which leaves the financial system vulnerable to shocks and crisis. In a new report from the CME Group, senior economist Erik Norland noted that ‘When a country’s total debt, public plus private, approaches 250% of GDP, financial crises seem to take root…’
“What is the risk? Eventually the lenders can pull the plug, which can trigger a collapse of the debt fueled expansion. China could be the most worrisome country on that list. At the world's second largest economy the repercussions of a hard landing or crisis could be far reaching.
“Gold is a winner through the first quarter. A period of consolidation is normal after such a large and quick rally move. Watch the $1,287.80 level on Comex June gold future. That is the key resistance level for the market and a sustained upside breakout above that ceiling will suggest that gold is off to the races yet once again.” (“Gold Is A Big Winner In First Quarter, What's Next?” Kitco, 4/1/16.)