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Van Eck reports gold soared on back of June’s dramas

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Joe Foster, Van Eck’s Gold Strategist writes that June saw several macroeconomic surprises around the globe that raised financial risks, propelling gold to new, near-term highs. 

On June 3, the US Department of Labor’s May jobs report fell far short of expectations, continuing a pattern of declining job growth that began in March, he writes.
 
“The odds of a US Federal Reserve (Fed) rate increase tanked along with the US dollar and gold advanced USD34 per ounce to USD1,244 per ounce. This allowed the metal to continue to establish a firm base above the technically important USD1,200 level.”
 
Further trouble lay ahead on June 16 when the Bank of Japan disappointed markets by refraining from adding stimulus and the Nikkei 225 Stock Average fell 3.1 per cent and gold soared to a new intraday high for the year of USD1,315 per ounce.
 
The Brexit vote caused financial and geopolitical ramifications across stocks, bonds, and currencies. Foster writes: “Now the UK and EU must work out the conditions of their divorce, and we know that few divorces end harmoniously. The level of uncertainty is high and outcomes that damage growth and trade are easier to imagine than a win-win scenario. The ultimate risk in the longer term is the viability of the EU and the possibility that other countries seek to exit or dismantle it. We hope for a more positive outcome and that Brexit acts as: 1) a wake-up call for the EU to become a more streamlined enabler of growth, rather than the stifling super-state it has, in our view, become, and; 2) a policy catalyst for the UK to again become a leader in trade and commerce that countries seek to emulate.”
 
Once the Brexit results were clear on June 24, gold soared to new two year highs, reaching an intraday peak of USD1,359 per ounce. Foster writes that gold finished the month at USD1,322.20 for a USD106.87 (8.8 per cent) per ounce gain.
 
“Strong investment demand continued, as demonstrated by inflows into gold bullion exchange traded products (ETPs). Inflows haven’t been this strong since 2009 when investors sought out bullion after the subprime credit crisis. A key difference in today’s market is that investors are being proactive rather than reactive. Many are seeing the looming potential for another financial crisis and making a strategic allocation to bullion as a hedge against systemic risk.”
 
Gold stocks reacted strongly to the move in gold with the NYSE Arca Gold Miners Index (GDMNTR) advancing 22.7 per cent, while the MVIS Global Junior Gold Miners Index (MVGDXJTR) gained 26.1 per cent. Silver also did well gaining 17.0 per cent in June to close the month at USD18.71 per ounce, its highest level since September 2014.
 
In terms of market outlook, Foster believes that gold is re-entering a bull market. He writes: “Last year we talked about the depth and duration of the gold bear market being on par with the worst in history and we began to adjust the portfolio in anticipation of a turnaround. This year we have highlighted the strength and resilience of the gold market. In our last monthly update, we gained the conviction to declare a new bull market. Given the events of the first half, it is not hard to imagine a robust market for the remainder of the year. We believe gold will test the USD1,400 per ounce level in the second half of 2016 and we do not believe it will end there. In addition to EU uncertainties, there are many other reasons we believe gold is (re)entering a secular bull market.”

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