Factors that pushed gold price higher!

Swiss gold exports hit 10 month high in March 

World Gold Council (WGC) just released, Gold Market Commentary, under the heading of Inflation, falling yields and the US dollar pushed gold higher, said, “Looking forward, we expect inflation concerns and the direction of rates to remain an important driver of gold prices, while rising Covid cases could weigh on consumer demand but support investment.” 

Looking ahead the Commentary says, rates dominate but Covid poses risks! Rising inflation expectations and questions around central bank tapering are front-and-centre for investors. Despite recent increases in inflation, central banks have maintained their accommodative stance in words and actions. 

Markets remain nervously poised for the outcome of rising inflation and central banks' reactions to it. While yields in the US moderated during April, they continued to rise across Europe and parts of Asia. Gold’s increased sensitivity to changes in interest rates means any shift in sentiment resulting in a resumption of bond selloffs could be a short-term headwind.

The trajectory of global Covid cases could also be significant. Cases are surging in India and outbreaks have been seen in various countries. Despite further signs of economic improvement and rallying equity indices, investor optimism for a quick recovery seems to have subsided in April. 

Should optimism continue to slide in May, we believe this could be positive for safe-haven demand for gold but may weigh on consumer demand. Net positioning in futures on COMEX and gold ETF flows are key indicators that we will be watching. 

Investment-driven factors influence gold substantially in the short term, but over the longer term the interaction between these factors and consumer demand ultimately drives performance. This is crucial to understanding gold’s-dual nature, being both an investment asset and consumer good. 

For example, strengthening consumer demand helped to mitigate the impact of gold ETF outflows during Q1 2020 and provided an element of support to the gold price. Both jewellery demand and retail investment saw substantial Q1 increases y-o-y, as lower gold prices and inflationary pressures encouraged a positive consumer response.

The principle that gold’s performance can be reliably explained by the interaction of supply and demand underpins our Gold Valuation Framework, which investors can assess by accessing Qaurum – our web-based gold valuation tool. 

At the Regional insights, focussing India, WGC notes, Cautious optimism for demand in May! India, following healthy retail demand in March, consumer demand slowed in April under pressure from surging Covid infections and a rising domestic gold price. Many states have implemented partial lockdowns and only essential businesses remain open. 

Consumer confidence has dipped, and anecdotal evidence suggests that wedding postponements have risen, impacting wedding purchases. The increasing restrictions have resulted in gradually declining sales throughout April. With lower retail demand, the domestic premium fell to US$0.5-1/oz by the final week of the month, compared to a premium of US$3-4/oz at the end of March. 

Looking ahead, the rising number of Covid cases will likely hamper the overall level of demand. Sales may find marginal support through retailers’ digital or Omni-channel strategies, something that was still being developed last year. 

Key Takeaways:   

1: The gold price rebounded 4.5% on the month,1 as inflation concerns grew and the US dollar weakened

2: Gold remains down 6% y-t-d, but has moved up closer to the psychologically important US$1,800/oz level

3: Sentiment via COMEX futures increased as net positioning rose 10% off March low

4: Outflows in gold ETFs continued, but slowed considerably in April – less than a fifth of those seen in March

5: China gold investment activity was muted in April as reflected in lower local trading volumes, 2 but jewellery    demand could receive a boost from postponed weddings

6: Surging COVID cases in India are raising concerns that the demand recovery seen in Q1 will slow

7: Swiss gold exports hit 10-month high in March, driven by higher demand in Asia.