Key Points:

• A low-volatility global environment for equity and commodity markets in April and May to date have helped to keep gold prices largely range bound between US$1170 and US$1230 per ounce over the period. In May, gold prices averaged at around US$1199 per ounce, largely unchanged compared to April.

• This reduction in volatility has largely been associated with contained macroeconomic volatility, as most major economies continue to be on a path of gradual recovery, notwithstanding a stall in US growth in Q1, while deflationary risks in the euro zone have somewhat receded from their peak at the start of the year. Policy stimulus from European Central Bank’s quantitative easing program helped shore up inflation expectations from an 11-year low in April.

• Since the start of this year, investors’ bearish sentiments on gold appear to have bottomed out, with the net flows into Exchange Traded Funds recording the first positive quarterly reading in the March quarter since the December quarter 2012.

• That said, ETF holdings are still expected to follow a mild downward trajectory as the US dollar appreciates in line with the approaching US Fed tightening cycle, which we expect to commence in September. This trend will be further accentuated by the lack of inflationary pressures globally at present, which reduces demand for gold as an inflation hedge.

• In Q1, notable falls in jewellery demand were recorded in the US and Europe, corresponding to improving returns from equity markets. Conversely, major jewellery consumers of China and India recorded marginal increases, but the former showed a sharp year-on-year ( Q1 2015 vs Q1 2014) decline of 10%.

• Central banks have maintained their gold holdings at a strong level in Q1, despite a slight fall from the previous quarter, as the depreciating trend in a number of major currencies against the USD spurred central banks to shore up their asset bases. According to Bloomberg Intelligence’s estimate, the gold holdings by the People’s Bank of China may have tripled since it last updated them in April 2009, to around 3,500 mt, which makes it only second to US holdings of around 8133mt.

For further analysis download the full report.

• Gold Market Update – June 2015 (PDF, 326 KB)