Gold has moved back into negative territory for 2015 after a strong beginning brought the promise of a potential recovery in the yellow metal following the sharp losses witnessed since the peak in 2011. Uncertainty related to the potential introduction of a full scale round of quantitative easing from the ECB, worries about Greece and the Swiss National Bank’s decision to drop its currency peg to the Euro in mid-January all help lift safe-haven demand for gold by investors.
Since then however the introduction of QE by the ECB and focus on the future policy action by the US Federal Reserve have dealt the euro a major blow and helped lift the dollar to a 12 year high not only against the euro but also against several major global currencies. With safe-haven demand fading and the dollar racing higher gold was left with limited support and it succumbed to a month long selling spree during which it managed to fall 8 days in a row, a feat that has only been seen a few times since the gold standard was abolished in the early 1970’s.
The dollar is and will continue to be a major influence on the future trajectory of many commodities, not least gold and this will ensure a prolonged period of raised volatility offering day traders and short term traders through CFD’s plenty of opportunities to benefit from these market swings.
Other key markets which could influence gold are US government bonds where yield movements are currently adversely correlated to gold’s performance. The strength of the US economy is reflected through bonds with stronger economic data sending yields higher (and gold lower) while potentially bringing closer the timing of action from the US Fed.
Gold support has come from the fact that 23 Central Banks across the world have eased monetary policies so far in 2015 and with safe-haven bonds in countries like Germany now offering negative yields on its bonds investors have become more open to alternative investments such as gold. Market consensus are currently for lower prices but the question remains how much of the gold negative news, apart from a further strengthening of the dollar has not already been priced in.
Ole Hansen, head of commodity research at Saxo Bank