Gold continues with losses from yesterday and the yellow metal is now down for two days in a row. Yesterday, gold wobbled after stocks regained momentum because of strong Q1 earnings by JPMorgan. Equities also benefitted from strong economic data from China – Beijing reported that its exports increased for the first time in nine months while its imports dropped a lower than expected rate. The USD also found strength against the Yen yesterday.
Gold extends losses today
Many gold investors won’t be happy with the way the bullion turned out in today’s trading session. Spot gold had a 0.7% haircut to $1,234.26 per ounce. More so, gold for June delivery was down 1.69% to $1,234.42. The weakness recorded in the bullion this week is already setting the yellow metal up for a 0.7% weekly decline.
One of the main reasons behind the decline in the yellow metal is that stock investors have already priced in weak Q1 earnings into stocks – many of them got out of stocks and took up positions in gold. However, they were pleasantly surprised when Q1 earnings appears to be better than expected – they are not wasting time to get out of gold and get back into stocks.
Another reason gold has been facing headwinds in the last couple of sessions is that the improved economic outlook, rally in stocks, and stronger dollar all points to the possibility that the U.S. Federal Reserve might go ahead to raise interest rates in April. The Fed has said that it would raise interest rates twice this year but fed officials have practically ruled out an April rate hike.
However, Naeem Aslam, an expert of fed policy opines that the many investors think that an April rate hike has high chances of likelihood even though the fed says otherwise. In his words, “traders are not willing to accept that the Fed will not be raising the rates anytime soon… Most of the bad news is factored into the dollar and it appears they cannot push the greenback any further. This is impacting the price of gold.”
Gold bulls remain undaunted by current weakness
Despite the current weakness in gold prices, some gold bulls are still confident that the bullion will still outperform other assets this year. Gold has already started out on the path to outperformance – the bullion is up 18% in the year-to-date and it is the best-performing commodity in the market right now.
George Milling-Stanley, head of the gold strategy team at State Street Global Advisors revealed that the position of his firm in the $33 billion SPDR Gold Trust (GLD) has gained more than $7B. The $7B gains is more than the losses that his firm made from the same position in 2014 and 2015 combined.
He thinks that people should use the current weakness in gold as an opportunity to buy gold at a discount. In his words, “We think most people were dangerously underweight gold or out of the market altogether.” He also believes that gold has more than enough room to run in the coming months. He says, “I would like to see gold go up steadily by about $100 in 2016, so to the $1,350 to $1,375 level by Christmas. That would be sustainable.”