Vang SJC

Yesterday the price of gold increased by 1.8% before weaker than expected retail sales. This also somehow showed the impatience of investors as Fed keep delaying rate hike. Dollar index fell nearly 1% and support for gold price.

Currently, the price continues to rise reaching $1,216.98/ounce at 5:25 pm GMT+7.
Today, it is likely that price will continue to rise due to the following reasons:

  • In India, jewelry demand reached 151 tons of , up 22% this year after weakening in previous months.
    According to the World Gold Council (WGC), demand in the second quarter has improved. They said positive GDP supported gold price. Besides, the demand before Akshaya Tritiya festival is also positive, retailers reported a sales increase of 10-15% compared to last year. However WGC warned: “One thing to remember is the less favorable weather in some rural areas by the end of March may affect demand in the region.”
  • ETFs net gold purchases reached 26 MT. This is the first positive figure since the fourth quarter of 2012 when investors return to gold.
  • Meanwhile, the Central Bank continued to increase its gold reserves. They purchased 119 tonnes in the first quarter, remained stable compared to the same period last year. This is the 17th consecutive quarter the central banks have net gold purchases, aiming at diversifying its foreign reserves, reducing dependency on dollar as currency reserves. Confidence in the fiat currency slumps, making investors increasingly buy gold.
  • Greece unrest remain as the market knew that the country had taken the money reserves (known as the SDR) in IMF funds to repay debt to the IMF! The risk of default of this country is still there, increasing the demand for gold as a safe asset.
  • China is planning to build massive infrastructure. Currently they have at least three projects building large infrastructure. They are investing $40 billion to build corridors in Pakistan. This is also the reason leading to volatility in the bond market (they release a large amount of bonds attract capital). These projects will push up commodity prices, causing inflation and gold will regain its position. However, this factor is likely to influence  the market in long term rather than short-term.

Consequently, price can move to $1,254/ounce.

However, prices may go down due to the following factors:

  • As reported by the World Gold Council (WGC), demand reached 1,079 MT in the first 3 months – fell by 1% compared to the same period last year, and below the average on quarter term in 5 years (1,114 MT ).
  • Meanwhile, Asian stock markets rose by 6%, reducing the attractiveness of gold. Chinese economic continuous poor data raises expectations that People’s Bank of China (PBOC) will take stimulus measures, making investors switch to other assets.
  • Atlanta Fed president said predicted inflation increased from 1.7% to 1.9% in May due to rising oil price. Rising inflation means U.S economy is recovering, which  will negatively affect gold price.
    Therefore, the price can decline to $ 1,169.

However, from now until the FOMC policy meeting, gold price may move mainly according to economic data. Today, U.S. government will publish the application for unemployment benefits. This is a useful indicator to help investors somewhat assess the US labor market. However, this data is not a perfect indicator. Howard Gold (2015) said that approximately 2.5 million Americans are in long-term unemployment who are classified as out of work and was looking for work in 27 weeks or more. The number halved compared to 2009 but remained high. Besides, 6.6 million Americans wanted to work full time but were working part-time due to economic conditions. And 2.1 million people are not in the labor force but want and can work, and was seeking employment for over 12 months. Picture of the US labor market is not encouraging in the long run, this could reduce the likelihood of the Fed’s rate hike.

Run out of patience, investors may move to other assets. Moreover, bond market. Yields rose difficult for US businesses and may continue to drag down dollar further and support gold prices.

Forecasting: Price may move to the range of $1,254/ounce.

Hanh Nguyen