Tuesday, August 19th 11:47 AM IST

Geopolitical issues, interest rate provide support for Gold: ETFS

# gold etf  # geopolitical tensions  # USA dollar  # interest rates  

In a weekly report, it said gold may surprise investors to the upside this year, due to rising geo-political risks which are likely to escalate, less than robust growth data and central banks issuing decidedly dovish messages.

LONDON (Bullion Street): Geopolitical concerns and real interest rates have provided support for gold prices recently, according to ETF Securities Ltd.

In a weekly report, it said gold may surprise investors to the upside this year, due to rising geo-political risks which are likely to escalate, less than robust growth data and central banks issuing decidedly dovish messages.

Gold ETFs see largest inflows nearly two years. Gold ETFs in July saw their largest inflows since November of 2012, up nearly 484,000 ounces. Concerns about global risks in the Ukraine and Russia, highlighted above, have likely played an important role in driving the flows. Clear evidence of this is the strong performance of gold in Euros, as the gold price has rallied and the Euro has declined as the Russia-Ukraine conflict has hit investor sentiment. Another factor is rising concern about what many view as overstretched risk asset market rallies.

A number of US Federal Reserve members have noted that historically low volatility is encouraging investors to take too much risk–particularly as the Fed exits its quantitative easing program. Some investors appear to agree and are acting to hedge against the possibility of a risk asset correction by increasing their gold allocations. While this alone is not sufficient to push the gold price significantly higher in the near term, the buying has provided price support.
World Gold Council reports sharp fall in Q2 physical gold demand, markets to focus on rates and risk.

Last week the World Gold Council published its Q2 Gold Demand Trends report, noting that the surge in physical gold demand seen in 2013 has subsided. Total jewelry fabrication was down by 29% YOY to 518 tonnes, accounting for about 53% of total demand. Led by India, the demand for bars and coins declined about 56% in Q2 YOY,notably due to regulatory restrictions. Central bank purchases increased 28% YOY to near 118 tonnes led by Russia, Kazakhstan and Tajikistan.

Given the historic surge in gold demand last year–particularly from China–as the gold price plunged, it is not surprising that demand is lower this year than in 2013. In the near term, we believe investor flows –both in the futures market and ETP market – will be the main driver of the gold price, with perceptions of real interest rate trends and geopolitical risks playing the dominant role. On this basis, we believe the gold price will continue to trade in a relatively narrow range in thenear term, barring a significant global macro or political shock.

How about a fully featured Android App for your business?
  • GAJGallery

    GAJGallery.com is a one stop shop for fine…

  • Alibaba Group

    Alibaba Group is a family of Internet-based…

  • PalmBeach

    Welcome to PalmBeach, where beautiful jewelry,…

  • saami crafts

    saami crafts is exclusive, high-quality…

Most Popular

Bullion Street Newsletter