Joe Foster, Van Eck’s gold strategist, reports that the gold price has taken off over April. He writes that the month saw the gold market move from a position of strength to one of even greater strength.
The gold price never traded below USD1,200 an ounce in March but late in April, the price reached its 2016 high of USD1,296 per ounce, ending the month at USD1,292.99, registering a gain of USD60.28 or 4.9 per cent.
May 2 saw even stronger news with gold reaching USD1,300 per ounce, for the first time since January 2015.
Foster writes: “We believe that an increasing sense of financial risk and US dollar weakness are driving investment demand for gold. When commenting on the global economy in a Bloomberg interview on April 5, International Monetary Fund (IMF) President Lagarde indicated that downside risks have increased and ‘we don’t see much by way of upside’.”
Foster lists reasons for the rise in the price of gold as:
• Positive changes in sentiment and investment demand for gold.
• Companies have successfully slashed costs, cut debt, gained
efficiencies, and generated cash.
• Mean reversion in a sector that had been oversold during the worst
bear market in history.
• Elimination of short selling pressure that had been weighing on
gold and gold stocks since they crashed in 2013.
• Limited liquidity in a relatively small sector with a global market cap
of just USD260 billion.
Foster concludes: “The investment demand evidenced by the strong inflows into the bullion ETPs this year suggests that many investors are making a strategic investment in gold to diversify and prepare their portfolios for the uncertainty of a financial system that may become increasingly dysfunctional.”
You can read his report in full here.