Gold investors are currently taking full advantage of the reprieve in 2014 following a long period of falling prices, with the precious metal rising as one of this year’s bets plays to date.
Since the beginning of the year up to July, the price of bullion has firmed by 11 % to as much as $1,339 per ounce. Silver, which normally reflects the fortunes of gold, has also experience the respite of strong gains, moving 10 % higher to $20.75 per ounce. In contrast, gold equities as gauged by the MSCI AC World index went up 6 % respectively.
The sea change is representative of a marked switch of luck for the struggling investors who have suffered significant losses over the past years. It was noted in the first half of last year, the gold prices cascaded by 26 % as record outflows from physically backed exchange-traded funds (ETFs) finally took their toll.
It is estimated that the ETF outflows from the first two quarters of last year totalled to 607 tons. In the same period for this year, the outflows have been substantially lower at just 41 tons. Some experts agree that the rebound is a result of the gold price being driven again by more basic themes such as the cheap U.S. dollar, geopolitical tensions in the Middle East, rising demand in jewellery, diminishing supply and resurgence in central bank purchases have all been instrumental as contributors to the price hike.
Delving more on the latter factor, the World Gold Council (WGC) predicted that over the first three months of this year, central bank purchases was 122 tons, if deemed annualised, would be the second most highest purchases in almost fifty years.
Furthermore, the Indian budget needed to be passed by the last day of July could see a cut in the gold import duty and relaxation on its import and export policies. The WCG estimated that gold easing measures could add 130 tons to the Indian golf demand throughout this year, taking a total demand up towards a near record of 1,000 tons. Global demand for jewellery is primarily the most important demand driver averaging 571 tons in the first three months of 2014 which marked the best annual start in more than nine years.
Recently, both silver and gold highlighted their frail volatile nature with the bullion closing below the $1,300 mark on July after the testimony of the U.S. Fed chairman before congress. While stating that monetary policy had to remain relatively complacent for the time being. The further improvements in the economy is indicative of another rate hike in the future.
As against the backdrop of the gold market, it should expect rough sails ahead form the U.S. policy which will prevent an unexpected downturn of the economy. For gold to move sustainably higher, the basic backdrop requires change such as investment demands that would need assistance markedly due to the broader economic or financial market risks.