High Gold due to inflation, falling yields and USD

High Gold due to inflation, falling yields and USD

Inflation grew, USD weakened and Gold price rebounded 4.5% on the month. Gold moved up closer to important USD 1,800/oz level, sentiment via Comex futures increased as net positioning rose 10% off March low, outflows in gold ETFs continued but slowed in April, China gold investment was muted in April and therefore lower local trading volumes whereas jewellery demand could receive a boost from postponed weddings, Swiss gold exports hit 10month high in March through higher Asian demand.

Inflation concerns and direction of rates remain an important driver of gold prices while rising Covid cases could weigh on consumer demand but support investment.
The gold price rebounded in April supported by positive gold market sentiment and boosted by inflation, falling yields and the dollar.

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, it 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 to be watched.

Traditionally, Q2 is a seasonally quiet time for gold demand in China. Available data for April shows that the average monthly trading volumes of Au9999 on the Shanghai Gold Exchange, usually seen as a high frequency indicator for China’s physical gold demand, declined over the month. But with the elongated International Labour Day holiday starting on 1st of May, and the pandemic currently being well contained, gold demand could receive a boost during this off season. Anecdotally, industry contacts suggest that wedding jewellery demand might offer substantial support as many couples plan to hold their delayed weddings during the upcoming holiday.

Following healthy retail demand in March in India, 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.

Looking at other markets, Swiss gold exports jumped to a ten-month high in March, with a notable increase to India, which registered its highest gold imports for a decade. Gold often flows through Switzerland to be refined into gold products popular in Asian markets, and the higher level of exports in March provides further evidence of stronger consumer demand.

ETF outflows slowed despite gold’s strong price performance.

For further information contact us through our web page, www.liemeta.com.cy