Gold outshines market in March quarter

Analysts attribute the outperformance to growth concern, hiatus in the dollar's rise and return of pent investment demand for gold

Gold outshone the broader markets across the world in the first quarter of calendar year 2016, on rising haven buying from investors and consumers alike. It rose 17 per cent in dollar terms, best in almost three decades and much more than major stock, bond or commodity indices. “We believe market uncertainty and expansionary monetary policies will continue to support both investment and central bank demand. This, combined with an analysis of previous bull-bear cycles, suggests we might be entering a new bull market for gold,” said the World Gold Council (WGC), market development body for the industry..

Gold’s price also increased in the major trading currencies, up 11 per cent, 20 per cent and nine per cent in euro, pound and the yen, respectively. And, 16 per cent in renminbi and rupee terms, beside 12 per cent in the Turkish lira.

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Gold also outperformed other asset classes, including major equity indices (some of which posted outright declines), investment grade and high yield bonds, as well as the commodities complex, including oil.

WGC gives five major reasons. One, concern about economic growth and financial stability in emerging markets. Two, hiatus in the dollar's rise. Three, implementation of negative interest rate policies by leading central banks. Four, return of pent investment demand for gold. Five, price momentum, or investors following gold’s upward trend.

The price has also benefited from strong investment inflow. Combined sales of 22k (Eagles) and 24k (Buffaloes) gold coins by the US Mint increased 51 per cent over a year before in the first quarter. Gold-backed exchange-traded funds had the second strongest quarter on record, with demand rising a combined 363 tonnes. Net long positions on the COMEX, the world’s largest gold futures exchange, had its largest quarterly average increase since the fourth quarter of 2009.

Anecdotal evidence suggests, in contrast to increases in investment flows in the recent past, that investor interest is broader based, coming from both retail (individual) and institutional investors. Traders believe these high returns indicate a move towards a new bull run in the metal.