Gold market; a 'contrarian consensus' developing

London (Apr 29)  Accepted wisdom has it that rising interest rates in a low inflationary environment put pressure on the dollar price of gold as a non-yielding asset class.  This time, however, the onset of the new interest rate cycle in the United States is expected to trigger gold price rises.

The GFMS Metals Research and Forecasts team at Thomson Reuters has enhanced its suite of products with the launch of its first Quarterly Update and Outlook, supplementing the prestigious annual Gold Survey.

Highlights Include:

Rhona O‘Connell, Head of the GFMS team, said that “The next move in the gold price is likely to be the result of a complex interplay between competing asset classes.  In the short term the price remains under some pressure, but any approach towards $1,100 will be constrained by a growing demand side response.  This is compounded by strong technical support around the $1,130 and $1,100 levels.  Further out, clarification of the timing of the first rate hike in the United States will remove a degree of uncertainty from the markets and is likely to trigger the start of a secular, but gentle, bull run in the gold price as investors implement fresh strategies, aided by improving gold market fundamentals”.

◦In the price outlook commentary, GFMS asserts that the market has already anticipated the new interest rate policy and that this is therefore more than priced into the market.  The GFMS annual average price forecast has not altered since the start of this year at $1,170/ounce and remains unchanged now.  The mean forecast from the Reuters News poll of market participants is $1,206.

◦World jewellery demand fell by 6.7% year-on-year.

◦The buoyancy of the Chinese stock market in the first quarter of 2015 helped to subdue domestic gold purchases, with retail investment down by 10.5% year-on-year in the first quarter. Gold content in jewellery demand has dropped by 12.4%, with 18-carat material outperforming 24-carat.

◦Indian jewellery demand was hindered by heavy rains in the first quarter, with jewellery offtake rising by just 2.0% year-on-year and investment demand slumping by 31% to its weakest level since 2009.  Falling local premia are impinging heavily on the hand-carry trade from sources such as Dubai.

◦Physical demand in the United States was down by 6% to the lowest first-quarter level since 2007.