Surprise: gold is rising again. Will the trend continue? Or is it a flash in the pan? What to do? Anyone who needs to buy a gold ingot or a piece of jewelry should read this confidential report that gioiellis.com has obtained. It is the analysis for its clients written by Nevine Pollini, Senior Analyst Commodities at Union Bancaire Privée.
«Since the beginning of February, the price of gold has been on an upward trend, supported by fears about the health of the economies of emerging countries. This element has rekindled investors’ interest in the yellow metal, which has always been considered a safe haven, and led to the closing of many short positions.
Recently, excluding the good January trade data, China has shown macro indicators that are lower than expected, especially with regard to the PMI indices. Combined with the weakness in UK and US macro data, mainly in manufacturing following a particularly harsh winter, this fueled concerns about global economic growth, supporting the performance of the yellow metal. A further positive element for gold came from the speech by Janet Yellen, Chair of the Federal Reserve, before Congress, in which Yellen explained that the Fed will implement the tapering of the quantitative easing plan in “measured steps”.
Other positive factors come from the stabilization of outflows from gold ETFs and the undoubtedly very solid physical demand from China. The latest data from the China Gold Association shows that consumption in 2013 rose 41% y/y to 1,176 tonnes, a rather exceptional situation that may not be repeated in 2014 and in any case did not really support the gold price in 2013.
Although gold currently has good momentum and can extend the rally to $1,350-1,360 per ounce, as the metal is trading at 3-month highs we doubt that Chinese investors will continue to buy at the same volumes, especially as they are generally price-conscious and domestic demand traditionally drops after New Year, as inventories are replenished before the celebrations.
Furthermore, while ETF outflows have stabilized, we are careful to note that the same flows have not actually followed the increases in the gold price, which we find worrying. Finally, a bearish push could prevail again once the global economy, and especially that of the United States, begins to strengthen again, when the weather conditions become more clement again.”
