Sunday 19, March 2017 by William Mullally

Gold: Focus on the United States but don’t lose sight of Asia

Julius Baer has expectations of solid growth, a stronger US dollar and rising interest rates still calls for fading safe-haven demand and lower price, writes Carsten Menke, Commodities Research Analyst

For the past months, the gold market’s focus was very much on the United States. Fears of president Trump becoming an ‘unguided missile’ revived safe-haven demand and pushed up prices, more than offsetting a stronger US dollar and expectations of rising interest rates in the United States. Prices have come down from the highs above USD 1,250 per ounce more recently as the likelihood of an interest rate hike later this month increased. Given our expectations of solid growth, a stronger dollar and rising interest rates, safe-haven demand should fade again. Hence, we continue to see downside for gold and reiterate our cautious view. While the gold market’s focus on the United States is fully justified at the moment, it should not lose sight of Asia. Consumer demand in China and India, the region’s gold powerhouses, is down to the lowest levels in six and fourteen years, partly because of regulatory factors such as a fight against corruption and illegal money. Furthermore, the People’s Bank of China has not bought any gold in five months as currency reserves were declining. Previously, it was one of the most active central banks in the gold market, supporting the theory of insatiable gold demand in China. As Asian demand is unlikely to recover significantly, it should remain a drag on prices.

The gold market’s focus on the United States is fully justified at the moment. Julius Baer has expectations of solid growth, a stronger US dollar and rising interest rates still calls for fading safe-haven demand and lower price. At the same time, the market should not lose sight of persistently weak demand in China and India.

 

 

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