Commodity Update; Gold – 18 May 2015
Gold gains ground on economic uncertainty and global bond sell off
After spending much of April under pressure, spot gold has embarked upon a strong recovery so far throughout May.
The key drivers behind gold’s strength has been an increasing level of economic uncertainty as developed market consumers have largely failed to deliver the boost in spending that was anticipated in the aftermath of last year’s oil price collapse.
This has meant several consecutive months of disappointing consumption figures which have since been followed up by a rebound in inflation measures, particularly in Europe.
As a result, investors exposed to ECB QE sensitive assets have taken their cue to begin hammering on the sell button, prompting the sharpest sell off in German long dated bonds for two decades and notable weakness in European equity markets.
As such, gold has risen by almost 5% from $1175 at the beginning of the month to $1226 today as investors continue to seek effective hedges against rising volatility.
Looking ahead economic performance in both Europe and the US will be key when it comes to financial market volatility. Should inflation numbers hold at their recent highs on the continent while the US consumer remains asleep then it is possible that we will see the metal extend its gains during the weeks ahead.
In addition to above, ongoing uncertainty over Greece and whether the new government in Athens will be able to reach a deal with its creditors could also add to the case for ownership of gold during the weeks ahead.
However, we also caution against excessive optimism given what has already been a strong performance from the metal during recent weeks, one which could also make further gains hard to come by without a resurgence of risk and volatility to go to boot.
Spot Gold / 8 Hour Intervals
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