Gold ended 2016 at $1150.62 and since then the metal has been on a winning streak that pushed prices to a five-month high of $1295.46. As of now, the metal trades around $1286; this amounts to 11.76% gain from the Dec closing level.

One may feel confused as the Fed did move interest rates higher by 25 basis points in March. Plus, the financial markets have been on the roll, while inflation has risen across the advanced world. The latest to join the inflation party was New Zealand, which reported CPI at five-year high earlier this week.

So what’s behind the gold rally?

Negative real yields: The bond yields across the advanced world offer negative yields. This is supportive for a zero-yielding safe haven asset like gold.

Geopolitical uncertainty: This one is a no-brainer… all the tensions between US, NKorea and China, US and Russia over Syria forced investors to pour money into traditional safe-haven assets like gold.

Trump trade fades: Trump’s healthcare debacle forced the markets to question his ability to deliver on the fiscal front. Arguments can be made that tax plan/infrastructure spending plan would be a relatively easy job, however, till now Trump has been on the news for all the wrong reasons. Markets are increasingly losing patience, which is evident from the fact that the US dollar barely moved yesterday, despite Mnuchin’s attempt to revive the Trump Trade by talking about delivering a tax plan soon. No wonder, gold is on the rise and looks set to extend gains even further.

Technical factors: Chart factors also supported the yellow metal. A rebound from the December low established a higher low pattern on the monthly chart, thus opening doors for more gains… which materialized over Feb-Apr period.

Factors that are/or may work against gold rally

The two things that could derail the gold rally in the short-term is the normalization on the geopolitical front and peak inflation.

The latest data released across the advanced world showed the inflation may have peaked. Moreover, the whole reflation trade was set in motion by a sudden spike in the China PPI in Q3/Q4 2016. Trump victory only added fuel to the fire.

Print Friendly, PDF & Email