People buy gold ornaments at a jewellery shop in Kolkata. Reuters
Gold prices have hit a record high amid a rush for safe haven assets owing to the fears of a recession. Goehring & Rozencwajg, a research firm which focuses on investments in natural resources, says the great gold bull market has begun.
Gold prices have surged over 20 per cent since January 1 and touched a life-time high of Rs 38,666 per 10 gm earlier in the month.
A bull market is defined by a condition in a financial market where commodity, stock, currency or bond prices are rising or are expected to rise.
According to the Goehring & Rozencwajg’s report, this bull market will be driven by Western investors, and their buying pressure may have already started.
Recently, the UK and Germany’s economy contracted, raising fears of recession. Germany, the biggest European economy which is largely export-driven, has been hit by US-China trade tensions.
The UK, the world’s fifth largest economy, recently logged negative growth, owing to the pressure on its businesses amid political uncertainty over Brexit.
“Precious metals were strong last quarter, as more and more central bankers talked about cutting interest rates and undertaking additional quantitative easing,” the report said.
Gold rose 9 per cent while silver once again lagged, rising less than 1 per cent. Platinum fell 2 per cent and palladium (again being pushed because of restrictive diesel regulations in Europe) rose 11 per cent.
Explaining the gold bull run further, Goehring & Rozencwajg said that gold stocks were also strong during the quarter, advancing by 14 per cent.
“We have seen a large increase in physical accumulation by both gold and silver ETFs (exchange traded funds) over the last several months,” the firm said.
However, they added that the only thing that concerned them was the price of oil relative to gold.
“Over the last three years, we have been very bullish on global oil markets. We explained how we were waiting for gold to become undervalued relative to oil, just like it did back in the 1999-2000 period.
“A ‘cheap’ gold-oil ratio would give us our final signal that gold’s three-and-a-half-year corrective phase had come to a close,” the firm said.
Meanwhile, high prices prompted Asian consumers to sell back physical gold this week to lock in profits, though price dips still attracted buying as economic jitters burnished the metal’s appeal as a haven from risk.
Interest in silver was also firm, with some consumers seeing it as undervalued, dealers said.
Global benchmark spot gold hit a six-year high on Tuesday and was headed for a third straight week of gains, up 1%. Silver was also on track for a 1.5% weekly rise.
“We’re consistently seeing people coming to sell gold,” said Brian Lan, managing director at Singapore dealer GoldSilver Central. “Refineries are all almost at maximum capacity now due to scrap gold selling.”
“On the other hand, we’re seeing more buying of silver because many investors see it as an undervalued asset.”
Consumers have also been buying gold every time there is a brief price dip, he added.
An inversion of the US yield curve this week for the first time since 2007 exacerbated concerns a recession is on the way, prompting inflows into safe havens such as gold and the Japanese yen. In top gold consumer China, premiums eased slightly to $6-$9 per ounce over the benchmark, from $9-$10 last week.
“Interest is coming mostly from the investment side,” said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.
Gold fell on Friday as stocks and the dollar firmed, but fears of a slowing global economy and lack of clarity on the US-China trade war kept bullion on track for a third straight weekly gain.
Spot gold was down 0.5% at $1,514.70 per ounce as of 1:42pm, but is up over 1% so far this week.
US gold futures settled down 0.5% at $1,523.60.
“The dollar index is strengthening quite a bit, equity futures are coming back. ... We’re going back a bit to riskier assets,” said Phillip Streible, senior commodities strategist at RJO Futures, adding that gold could also be seeing some profit taking.
Hopes for more official economic stimulus for the economy and the easing of a bond market rally drove a broad rise in U.S. stocks on Friday, as a bruising week for markets drew to a close.
Meanwhile, the dollar index, which measures the greenback against a basket of six major currencies, was up 0.1% after hitting a two-week high.
“On the daily charts gold still looks good, but we’ve have to get above that $1,546 in order to reignite new longs into the market,” Streible said.
Bullion has risen more than $100 since the beginning of the month amid falling global bond yields, heightened trade tensions and a slew of disappointing economic data globally.
Earlier this week, 10-year Treasury yields dropped below the two-year yield for the first time in 12 years. Curve inversion is widely considered a warning that the economy is headed for recession.
“There are lots of demand factors and drivers that are making the incremental gold buyer keep their eyes on the gold market,” said Michael Matousek, head trader at US Global Investors.
“I anticipate gold pulling into about the $1,460 level. ... It’s still not breaking trend and that’d probably be a good level for people to start accumulating.”
US President Donald Trump said on Thursday he believed China wanted to make a trade deal and that the dispute would be fairly short.
Beijing had vowed to counter the latest tariffs on Chinese goods but called on Washington to meet it halfway on a potential deal.
Investors will now focus on the U.S. Federal Reserve’s annual symposium next week for further hints on monetary easing.
On the technical side, spot gold may fall into a range of $1,483-$1,503 per ounce, according to Reuters technical analyst Wang Tao.
Elsewhere, silver fell 0.6% to $17.16 per ounce, but was on track for a second consecutive weekly gain.
Platinum rose 0.9% to $849.95 an ounce, while palladium rose 0.4% to $1,450.7 an ounce.