The latest Short & Leveraged report from WisdomTree finds that the gold rally petered out in August, with prices dipping as investors appraised valuations after seeing double digit gains across the previous two months.
The firm writes that the end of the rally coincided with weaker investor appetite, with global net inflows into unleveraged Gold ETCs down to USD859 million in August, the lowest level since April and far below the USD4 billion average monthly net inflows over the past three months.
WisdomTree writes: “Is this truly the end of the rally though? It may be too soon to tell, but certainly the implications of tighter monetary policy from the US Federal Reserve would weigh on the precious metal if they boosted the US dollar.
“However, the speculation for imminent Fed tightening by the end of this year has eased slightly, which could see downwards momentum for flows reverse in September. Across the precious metals board, leveraged short ETPs were the stand out commodity performers as some three times leveraged short silver ETPs offered returns of up to 28 per cent as silver prices crashed by 9 per cent.
“Meanwhile, with the threat of interest rates rising in the US remaining, investor appetite for US treasuries has eased back, with performance from leveraged products duly affected.”
Nick Leung, Research Analyst at WisdomTree, says: “The latest report shows that investors may be indicating that the gold price is set for a reversal in recent fortunes. The recent turmoil caused by the UK’s decision to leave the EU saw investors flock to gold as a safe haven, however, this rally looks like it might be coming to an end. With the US Federal Reserve pointing towards a rate hike, albeit not necessarily in September, the price of gold is likely to suffer and as a result investors are beginning to take up short positions.
“However, the great unknown is the upcoming US Presidential election. With the polls showing the candidates neck and neck, the market turmoil we have seen in 2016 may persist for the remainder of the year. As a result, we would fully expect to see investors flock back to safe havens such as gold, however, what the Federal Reserve chooses to do with interest rates may put investors in a very tricky position.”
“Meanwhile in equity markets, investors continue to enjoy a post-Brexit renaissance as European broad equity benchmarks maintained their recovery, with improving risk sentiment most pronounced towards Eurozone bank stocks. Quantitative Easing strategies are likely to remain in place for the foreseeable future so we fully expect equities, along with European government debt, to continue to strengthen over the coming months.”