Confidential dossier on gold. Gioiellis publishes the analysis intended for professionals by Nevine Pollini, senior commodities analyst at the Swiss Union Bancaire Privée (Ubp). It is useful for understanding whether your jewels are destined to be worth more or less in the near future. Here is the document.
«After falling to $1,244.86 an ounce on June 4, gold has risen above the psychological threshold of $1,300 for the first time since May. The yellow metal has in fact returned to being a safe haven, due to the new tensions in the Near and Middle East and the ongoing unrest in Ukraine. Gold has also been supported by several developments on the monetary policy front: on the one hand, the European Central Bank (ECB) has cut interest rates and launched a massive stimulus program, on the other, the Federal Reserve has hinted that a rate hike is unlikely until 2015. These factors have triggered a wave of short-covering.
Another factor supporting gold is investor concerns about a spike in US inflation, as the latest CPI data showed a strong increase of 2.10% y/y, driven by a sharp increase in housing costs. However, inflation expectations remain weak; the PCE deflator (which the Fed uses to track inflation) is still below the 2% target of the US central bank.
Weak physical demand has weighed on gold this year: it has slowed in China, the world’s largest consumer, probably due to the depreciation of the yuan; Recently released data from Hong Kong also showed that gold exports to China have fallen significantly. In addition, the Chinese government has just uncovered a fraud of about $15 billion involving loans backed by fake certificates issued for gold transactions that never took place. After the copper fraud case in Qingdao port, the government may take serious action on financing arrangements, which could reduce gold imports to China.
However, we believe that Asian demand is likely to recover during the year. The third quarter is usually a good period for gold prices, as Indian purchases (ahead of the festival and wedding season) usually boost physical demand, and this is especially true this year, as the country’s central bank has slightly eased import restrictions. The new Bharatiya Janata Party government is also expected to further ease these restrictions in the second half of 2014. These factors, combined with a renewed strength of the rupee, could certainly boost demand for gold. Another driver that could push gold prices higher is the recent announcement by the Chinese government of plans to allow international trade in gold bars for offshore yuan account holders via the Shanghai Free Trade Zone by the end of the year.
The yellow metal is also benefiting from stabilizing outflows from gold ETFs. Shares have been flat since early May, but the sector has recently seen a nice increase in activity in gold ETFs. For now, gold’s momentum is strong and could extend its rally, especially if the situation in Iraq gets so out of control that high oil prices push up inflation, nipping the economic recovery in the bud. However, we expect the precious metal to continue to trade in a tight range, due to the strength of the US economy, rising long-term yields and the Fed’s exit strategy from accommodative monetary policies.”
