• Tensions between the Ukraine and Russia have been less disruptive than a month ago, reducing market volatility and bringing down gold’s risk premium –allowing gold markets to refocus attention on macroeconomic drivers.
• Reasonably positive economic data out of the US, and some recent good company results, have helped US and global equity prices rally. Similarly, the US Fed’s QE tapering is largely unfolding as expected, putting aside recent falls in bond yields, while relatively benign inflation pressures are limiting demand for gold as an inflation hedge.
• This has all weighed heavily on investor demand for the shiny metal. Exchange traded fund (ETF) holdings of gold have again started to decline, having experienced a period of stabilisation since around the start of the year. Net-long positions in gold are also down from recent peaks.
• Physical demand indicators are also a little softer, contributing to a rise in Comexgold inventories. Chinese net imports of gold from Hong Kong have fallen 40% from their most recent peak in February, and are 50% below last year’s all time high.
• Consequently, after remaining relatively trade bound for much ofthe past month, gold prices dropped almost 4% since the end of May to around US$1,245 per ounce.
• Aside from the geopolitical risks, a potential unwinding of India’s gold import restrictions, post the recent election, poses a significant upside risk to gold prices. Some measures have already been relaxed and should help to ease elevated gold premiums in India, although the impact on exchange prices has so far been limited. Gold Market Update –May 2014

For further analysis download the full report.

• Gold Market Update – May 2014 (PDF, 349KB)