Compared to last year, the first quarter wasn’t that interesting for gold. However, the yellow metal showed a decent start to the second quarter. Gold prices were seen moving up around 1.5% last week. It ended close to the $1760 an ounce, we closed for the week. As the week opened, Gold prices fell on Monday, weighed down by firmer U.S. Treasury yields and dollar after better than expected U.S. economic data lifted prospects for higher inflation. Spot gold fell 0.2% to $1,739.20 per ounce.
Stronger than expected data suggests that inflation (will be) picking up faster than expected in months to come, which is leading to a rise in real yields, exerting pressure on gold. If we do get flaming inflation readings next week, it could be a catalyst for higher Treasury yields, which would be bad for gold. But once we pass that event and if gold would still near $1,750, that would be a green light for prices to rise higher. There could be more upside potential for gold after the CPI data.
Prithviraj Kothari, the bullion king of India remains optimistic as the gold prices might have already hit their bottom in the first quarter of this year. In that case, we can expect a favourable environment for gold to rose. The Fed removed the big risk as far as yields surging. This will act in favour of the yellow metal. And even though we might not see the August record highs, gold could make a move towards $2,000 again.
We have a line up of data releases this week, which might catch investors attention-
- U.S. jobless claims
- Retail sales
- NY Empire State manufacturing index
- Philadelphia Fed manufacturing index
- Industrial production
Other supportive drivers for gold are-
Stronger physical demand – Since the onset of the pandemic, gold has also seen an uptrend. A few minor drops were witnessed, but overall it has been a green zone gold. High demands amongst the Chinese and Indian coupled with renewed interest from central banks have all delivered sufficient support for the yellow metal.
Piling gold reserves by central banks – With 2021, Prithviraj Kothari expects that the new year will bring a global economic rebound, “The possibility of capital inflows into emerging markets and the low interest-rate environment may lead to central banks adding gold for diversification purposes The breadth of central banks purchasing gold could potentially rise substantially considering the massive increase in sovereign debt and the rapid pace of money supply growth in reserve currency countries. A sustained rise in official interest could provide further support for the yellow metal.
Furthermore, domestically, Gold and Silver could become expensive from the current levels on two counts. With the international prices going up, the resurgence of the Coronavirus Pandemic could drift investments towards this haven, resulting in the increasing demand for gold.
However, we still find some players in the market who are pulling out from gold and pooling into equities, cryptos and other asset forms. But as the bullion king of India along with many others say that crypto is a bubble and if this bubble pops then it will be a huge and significant game changer for gold. But to be sure, this is technically not possible. All we can say is that if at all the bubble bursts then $2250 an ounce for gold will be a cakewalk.