After the biggest quarterly loss since 2016
“Gold has played its typical role as insurance against market disruptions and as a port facility,” says Frederic Panizzutti, head of institutional and central bank sales at the precious metals trader and refiner MKS.
“Over the past year, markets have had little visibility” regarding the Covid-19 crisis, not knowing when a vaccine would be available or how long lockdowns or cross-border travel restrictions would last, he says. “Given the uncertainties, the market needed some sort of financial anchor, a safe haven – and gold seemed to be the answer.”
rose nearly 25% in 2020, the largest annual increase in ten years. So far this year the metal has been trading around 8% lower after losing 9.5% in the first quarter general upward trend in commodities Prices.
The metal was available but “not in the right place at the right time and premiums rose in some parts of the world” as investors looked for the physical metal, Panizzutti says, adding that it has “remained scarce in some parts of the world is world. “
As of March 2020, well into the third and fourth quarters of this year, there was strong gold demand – and prices – in the US and Europe, says Kevin Rich, global gold market advisor for the Perth Mint.
During the same period, there was “very little demand for gold” in Asia and gold was traded at discounts in Asian markets, he says.
This year, “we have seen a reversal, with Western investment demand declining and prices weakening, while Asian markets have switched to premium and demand has risen sharply.”
Without this dynamic between East and West, there might have been more volatility and weakness in the gold price, he says.
A lot of
A decline this year was attributed to increases in US dollar and government bond yields.
“Investors have switched to treasury products to get a return on their investments,” says Panizzutti. Rising bond yields can dampen investors’ interest in gold, which offers no yield.
Also contributing to the losses in gold is an increase in confidence in the prospects for economic growth in Asia, mainly China, and the US, which “started faster and earlier than previously expected” and reduced the appetite for gold, Panizzutti said.
Looking ahead, the price of gold would likely rise, though
soften and volatility increases, says the Perth Mint’s Rich.
This could happen if interest rates rise faster than the markets expected, if the Federal Reserve sees the pandemic “subsiding and withdrawing support, or if inflation were to rise more sustained than the Fed expected,” he says.
If there are signs that the pandemic is ending, “we’ll see the real impact of massive US and world government stimulus spending,” says Rich. The could lead to gold profits as growing indebtedness threatens to weaken the output value of the dollar.
As for how high the prices could be this year, Panizzutti believes it is “quite possible” that gold will rise again to $ 2,000 an ounce later in the year. It billed at $ 1,741.60 on April 7th.
The “massive emergency incentives” and subsidies introduced into the global economy in the past 12 months led to “very significant monetary expansion,” he says. Paper currency could “lose value over time and affect purchasing power in large economies,” and gold would then be a “good hedge” against this loss of purchasing power.
“We don’t think the gold bull cycle is over,” says Panizzutti.
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