Why Is Gold So High? Macquarie Seeks To Answer Question-Shanghai Metals Market

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Why Is Gold So High? Macquarie Seeks To Answer Question

Industry News 11:38:49AM Dec 22, 2016 Source:kitco

Tuesday December 20, 2016 13:12

(Kitco News) - Despite recent weakness, gold and silver are poised for their first yearly gains since 2012, with gold getting ready to log 8% year-to-date gains.

The strength of gold is leaving one research firm wondering, why gold is so high?

“Gold might be on course for its second-worst quarterly performance since 1982, but it remains well above last year’s price low, despite a stronger dollar, high bond yields and ominous signs physical demand is hamstrung,” said analysts in Macquarie Research’s latest commentary.

Gold is up against major headwinds -- a strong U.S dollar, a hawkish U.S. Federal Reserve and signs of a recovering U.S. economy. What’s more, although the metal was hit hard following the Fed’s recent rate hike and signal to hike at a faster pace in 2017, gold is still faring pretty well.

“If [gold] stays around this level its quarterly performance will be roughly a 15% loss – the second poorest (after 2Q13) quarterly performance since 1982. But things could be worse,” they said.

Gold-backed exchange-traded funds have also experienced significant outflows this year, further hurting the price. “[I]f we look at physically backed ETF demand, we see that the selloff this 4Q has been much more severe than last 4Q, with 175t having been liquidated so far compared with just 60t last year,” Macquarie noted.

And yet, gold prices remain higher than they were this time last year ahead of the Fed’s first rate hike in nearly a decade.

“After all, its London settlement price yesterday of $1,127/oz is still $78/oz, or 7%, higher than the low of $1,049/oz seen almost exactly a year ago.”

What’s holding the price up?

The analysts suggested the strong U.S. dollar especially when compared to other world currencies – which is making the price of gold in those currencies more favorable to investors – as a potential reason. However, the surging U.S. dollar index, which scored another 13-year high overnight, remains a bearish anchor pulling down the precious metals markets.

If not the dollar, they continued, another possibility would be low yields.

“Real yields retreated on Friday, but investors continue to sell and if that is the explanation then there is a risk of further losses in the very near term, even if the external environment is unchanged,” the firm’s analysts said.

They added, these “real yields” have increased significantly in recent weeks and even days – closing 15 December at 0.70%, up from 0% at the end of 3Q, marking their third-biggest quarterly increase since 2000 – but, they remain below the peak seen this time last year of 0.84%.

”In short, though, still-lower real yields, perhaps driven by higher inflation, could help explain at least partially why gold is higher YoY.”

February Comex gold was last down $9 an ounce at $1,133.60. March Comex silver was last down $0.024 at $16.065 an ounce.

Key Words:  Gold prices 

Why Is Gold So High? Macquarie Seeks To Answer Question

Industry News 11:38:49AM Dec 22, 2016 Source:kitco

Tuesday December 20, 2016 13:12

(Kitco News) - Despite recent weakness, gold and silver are poised for their first yearly gains since 2012, with gold getting ready to log 8% year-to-date gains.

The strength of gold is leaving one research firm wondering, why gold is so high?

“Gold might be on course for its second-worst quarterly performance since 1982, but it remains well above last year’s price low, despite a stronger dollar, high bond yields and ominous signs physical demand is hamstrung,” said analysts in Macquarie Research’s latest commentary.

Gold is up against major headwinds -- a strong U.S dollar, a hawkish U.S. Federal Reserve and signs of a recovering U.S. economy. What’s more, although the metal was hit hard following the Fed’s recent rate hike and signal to hike at a faster pace in 2017, gold is still faring pretty well.

“If [gold] stays around this level its quarterly performance will be roughly a 15% loss – the second poorest (after 2Q13) quarterly performance since 1982. But things could be worse,” they said.

Gold-backed exchange-traded funds have also experienced significant outflows this year, further hurting the price. “[I]f we look at physically backed ETF demand, we see that the selloff this 4Q has been much more severe than last 4Q, with 175t having been liquidated so far compared with just 60t last year,” Macquarie noted.

And yet, gold prices remain higher than they were this time last year ahead of the Fed’s first rate hike in nearly a decade.

“After all, its London settlement price yesterday of $1,127/oz is still $78/oz, or 7%, higher than the low of $1,049/oz seen almost exactly a year ago.”

What’s holding the price up?

The analysts suggested the strong U.S. dollar especially when compared to other world currencies – which is making the price of gold in those currencies more favorable to investors – as a potential reason. However, the surging U.S. dollar index, which scored another 13-year high overnight, remains a bearish anchor pulling down the precious metals markets.

If not the dollar, they continued, another possibility would be low yields.

“Real yields retreated on Friday, but investors continue to sell and if that is the explanation then there is a risk of further losses in the very near term, even if the external environment is unchanged,” the firm’s analysts said.

They added, these “real yields” have increased significantly in recent weeks and even days – closing 15 December at 0.70%, up from 0% at the end of 3Q, marking their third-biggest quarterly increase since 2000 – but, they remain below the peak seen this time last year of 0.84%.

”In short, though, still-lower real yields, perhaps driven by higher inflation, could help explain at least partially why gold is higher YoY.”

February Comex gold was last down $9 an ounce at $1,133.60. March Comex silver was last down $0.024 at $16.065 an ounce.

Key Words:  Gold prices