Gold’s best quarterly performance in a year is no guarantee that run-up will continue, analysts say

·3-min read

A stellar run on gold prices that has put the precious metal on course for its best quarterly performance in a year will probably stall, with the prospects of a global recovery set to sap demand, analysts said.

Gold futures have gained 9 per cent in the second quarter in New York, as the US Federal Reserve has turned its back on accelerating inflation and pledged to keep accommodative monetary policies, asserting that price pressure was actually amplified by the pandemic.

Analysts from Ping An Securities and Hua An Futures said that the run on bullion will not be sustainable, with vaccinations across the globe set to brighten the growth outlook and benefit risk assets such as stocks.

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“The global recovery and rising vaccinations will boost risk appetite and keep it at a relatively high level,” said Cao Xiaojun, an analyst at Hua An Futures. “Gold and silver will probably resume a weak course and we recommend being bearish.”

Gold futures were little changed – at a four-month high of US$1,867.70 per ounce – in New York on Wednesday, as traders awaited the minutes from the Fed’s April meeting for signs on whether the world’s biggest central bank will taper bond purchases earlier than expected. Gold’s performance also trailed an 11 per cent jump in the Bloomberg Commodity Index this quarter, which has been buoyed by industrial metals amid a supply squeeze.

A jump in US Treasury yields sent gold prices plunging 9.6 per cent in the first quarter and snapped a stretch of nine consecutive three-month periods of gains, as high debt yields eroded the appeal of the precious metal, which bears no interests rate. Bullion futures surged 24 per cent in 2020, with investors piling into exchange-traded funds linked to gold as a hedge against currency debasement, after the Fed unleashed an unprecedented amount of liquidity to combat the fallout of the Covid-19 pandemic.

Gold has won favour among investors again this quarter, as looming inflation boosts its allure as a hedge against rising prices and the Fed plays down the implication of inflation by saying that the increase is transitory. Consumer prices in the US rose at their fastest pace since 2009 in April, while China’s factory gate inflation accelerated at its quickest pace in more than three years.

“For gold, it’s still [the case] that opportunities outstrip risks, as long as the Fed keeps dovish, the US hasn’t been fully vaccinated and the jobs market doesn’t improve by adding millions of jobs on a constant basis,” said Wei Wei, an analyst at Ping An Securities. “But expectations shouldn’t be high for a further rebound in gold prices against the backdrop of global recovery.”

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