The gold price has been on a steady climb in recent months, with a number of factors contributing to the increase. In this update, we will take a closer look at the drivers behind the recent rally and what investors can expect in the months ahead.
The average price for gold in Mai 2019 was 1.283,20 USD an ounce. The lowest was 1.270,54 USD an ounce while the highest was 1.299,91 USD an ounce. Average gold price in 2019 was $1,393.34.
The United States’ announcement of a robust 3.2% GDP growth for the first quarter of 2019 took many by surprise, outpacing the forecasted growth rate of 2.1% to 2.5%. Despite the impressive figures, some analysts are concerned about the overheating of the economy.
The US Dollar remains strong, which is peculiar given the Risk-On mode in the US stock market where investors show a willingness to take risks. Typically, a weak US Dollar is observed in such scenarios as investors sell off Dollar assets to capitalize on other investments.
The strong US Dollar is usually linked to a tighter monetary policy and interest rate hikes. While the interest rate hikes last year contributed to the Dollar’s strength, the Federal Reserve put a halt to future hikes in January due to the US-China trade war and other global uncertainties, turning dovish.
The US Dollar dominates due to the weaknesses in other countries such as the loss in the trade war by China, Brexit in the UK, and the popped housing bubble in Australia, among others. The US Dollar reigns supreme despite its flaws as the weaknesses in other countries are more pronounced.
Economic and Political Uncertainty.
The strong performance of the US economy coincides with the Dollar’s shining performance, with the Dollar Index reaching a 22-month high. This has resulted in a decline in other currencies, including the Pound, with gold currently priced at £991.21 per ounce and the Sterling exchange rate at $1.2922. On the surface, the Q1 data seems promising for the US economy with its evident growth and low unemployment rate of 3.8%. However, it is important to note that the GDP growth is boosted by stockpiling and the rising spending and investment figures indicate a growth slowdown, although still showing gains.
One of the biggest drivers of the recent gold price increase has been the ongoing economic and political uncertainty around the world. With global economic growth slowing, trade tensions between major countries increasing, and various geopolitical risks, many investors are turning to gold as a safe haven asset. This has led to a surge in demand for the precious metal, driving up the price.
Increased Investment Demand.
In addition to increased demand from individual investors, institutional investors have also been increasing their exposure to gold. With many central banks around the world cutting interest rates, investors are seeking alternative investments with higher returns, and gold fits the bill. This has resulted in a significant increase in demand for gold-backed exchange-traded funds (ETFs) and other gold-related investment products.
Gold demand hit a three-year high in H1 2019, thanks to robust purchases by central banks globally and a surge in gold deposited into exchange-traded funds (ETFs). The World Gold Council reported that central banks added 374.1 tons of gold to their reserves in the first half of the year, with 224.4 tons added in Q2 alone. Meanwhile, ETF holdings rose by 67.2 tons in Q2, reaching a six-year high of 2,548 tons.
Gold supply also saw growth, increasing 6% in Q2 to 1,186.7 tons, with a record 882.6 tons from gold mine production and a 9% rise in recycling to 314.6 tons, driven by the strong June gold rally. Overall, supply reached 2,323.9 tons in H1 2019, the highest level since 2016.
According to Alistair Hewitt, Head of Market Intelligence at WGC, June was a significant month for gold as the price broke out of a multi-year trading range, hitting a six-and-a-half-year high, and gold-backed ETF assets under management grew by 15%, the largest monthly increase since 2012.
Supply Constraints.
While demand for gold has been increasing, supply constraints have also played a role in the recent rally. The mining industry has struggled to keep pace with demand, as many gold mines are facing production cuts due to declining ore grades and other operational challenges. This has resulted in a tighter supply of gold, putting upward pressure on the price.
In conclusion, the gold price has been on a steady upward trend in recent months, driven by economic and political uncertainty, increased investment demand, and supply constraints. With many of these factors expected to remain in place, the outlook for the gold price is positive, although investors should be prepared for potential fluctuations.
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