On Tuesday, I wrote a post about the bullish outlook for gold. In that post, I talked about how gold investors are smiling to the banks. However, I concluded that post with facts that analysts are still divided about where gold is ultimately headed in 2016. In fact, some analysts noted that gold has a 50:50 chance of going north or south because gold is yet to consolidate support around $1,250.
Gold is back to winning ways today and the yellow metals seems to have regained the wings of its bullish flight after the outlook for gold weakened earlier in the week. The yellow metal is up 1% to touch $1,274.70, which is the highest trading price in the session as well as the highest trading price since February 2015.
You’ll remember that 2015 was a particularly disheartening year for gold investors because the bullion declined by more than 10%. However, the bullion has erased the losses that it recorded last year with more than 16.51% gains in the year-to-date period. In fact, the rally to $1,274.70 today effectively gives the yellow metal a 21.8% increase over its December 2015 low.
Gold regains safe-haven status
The chart below from Reuters shows that ascent of the yellow metal to a new 13-month high. The improved outlook for the yellow metal is causing inflows into gold investments to increase. Reuters reported that holdings in the SPDR Gold Shares (world’s largest gold-backed ETF) have increased by almost 5 tons on Thursday. In fact, data from and the flow and ebb of investors in the fund shows that inflows are already up 151 tons in the year-to-date period in sharp contrast to inflows of 52 tons in the same period last year.
Simon Weeks, head of precious metals at ScotiaMocatta notes that “In the last 24 hours or so, gold has cleared the ($1,250 an ounce) hurdle and triggered additional buying. People’s focus has come back towards gold as a safe haven for the first time in a couple of years, and hence the reasons we’ve had the moves that we have had.”
Gold gets a brighter outlook
On Tuesday, many analysts took a cautiously bullish stand on gold because of better-than-expected economic data. The U.S. ISM MFG data showed that the economy was not contracting as fast as investors feared. More so, there were hints that the U.S. job data due today will show a marked improvement in the labor market. Better-than-expected economic data and strong jobs report will suggest that the U.S. economy is recovering and that the Federal Reserve will be more confident to raise interest rates.
The U.S. jobs report is due in the next couple of hours and the market will trade gold based on the strength or weakness of the jobs data. If the payroll data is weak, gold will find support at current levels to climb higher as investors seek refuge in the safe-haven status of gold. In contrast, strong payroll data will show that employers have enough confidence in the economic climate to hire more workers – the confidence will encourage investors to leave gold to seek higher ROI in other asset classes.
Interestingly it appears that the ECB policy might start to have as much impact as the U.S. Federal Reserve policy in how the market perceives gold going forward. For instance, a UBS analyst, Joni Teves says “Although gold is very much driven by Fed policy, the impact of ECB policy decisions may become increasingly relevant for gold price action as concerns about negative interest rates gain traction among investors… This has been one of the factors institutional investors have considered as they contemplated their gold exposures this year. We think negative interest rates should be positive for gold.”