Financial Analysis of Gold Market – April 2017

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The price of gold has risen ~12 percent year-to-date, and it looks like the upward trend will continue. Sentiment has turned up in the gold market the last few weeks. Data from the top gold consuming country – India – shows there may indeed be cause for optimism among gold buyers.

Bubble size represents market cap

FIGURE 1: PERFORMANCE OF GOLD MINERS

Description: Figure 1 highlights the performance of the gold mining industry for the month of April 2017 (x-axis) and the performance of the 11 months prior to April 2017.

Recent reports showed that India’s gold imports saw a big jump during the most recent quarter, January to March 2017. With total imports for the period hitting 230 tonnes. The pick up in buying is related to the Indian government’s crackdown on large banknotes since early November 2016. Since the event, gold imports have jumped to 360 tonnes for the five months from November to March. If we annualize the figures from the past quarter, India is on pace to import 920 tonnes for this year. This would represent a massive improvement from the 13-year low for imports of 571 tonnes the country saw in 2016.

Aside from the demonetization in India, Gold was spurred by increasing geopolitical instability in the world. Headlines in Syria and North Korea seem to have investors on edge, cutting short recent Dow Jones’ record-breaking performances and giving gold prices the leg up.

Also, we need to keep an eye on the most important factor in gold’s price, the strength of the US Dollar. Expectations of a strengthening USD are fading and we are starting to see weakness creep into the US data, changing the perception about how much rates will rise. Uncertainty around Donald Trump’s deliveries compared to promises on the fiscal situation and spending front are also leading to economic uncertainty.

Meanwhile, other precious metals have also gained. While spot prices of gold have rallied 11.65% year to date, those of silver, platinum and palladium have added 16.43%, 7.76% and 16.98%, respectively year to date.

To summarize, geopolitical tensions, economic uncertainty around the new US administration’s capability to deliver on its promises, recent weakness in the dollar index, and the gradual pace of monetary tightening this year from the US Federal Reserve, all point to a higher move for the price of the yellow metal.