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Market update: Gold outshines the market in the first quarter of 2016 according to World Gold Council research

Personal Finance
Market update: Gold outshines the market in the first quarter of 2016 according to World Gold Council research

Content supplied by the World Gold Council

Gold staged a spectacular rally in the first quarter of this year, rising 17% in US dollar terms – its best performance in almost three decades.

The return on gold significantly outperformed other major stock, bond and commodity indices.

We believe that 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 may be entering a new bull market for gold.

The gold price rose by 17% in US dollars in Q1 2016

Gold’s strong rally made it one of the best performing global assets during the first quarter. Its price also increased in the major trading currencies, rising by 11%, 20% and 9% in euro, British pound and Japanese yen terms respectively. It was up 16% in Chinese renminbi and Indian rupee terms, and 12% in Turkish lira (Table 1).

Table 1: Gold delivers strong returns to investors around the world
Quarterly gold performance in key currencies*

Gold outperforms other major asset classes

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 (Chart 1).

Chart 1: Gold strongly outperformed most of the assets that investors hold...
Quarterly return of key assets measured in US dollars*

Market uncertainty and expansionary policies support gold

The rally in the gold price is being supported by five key factors, in our view:

1. Ongoing concerns about economic growth and financial stability in emerging markets

2. A hiatus in the rise of the US dollar

3. The implementation of negative interest rate policies by leading global central banks1

4. The return of pent up investment demand for gold

5. Price momentum (i.e. investors following gold’s upward trend).

Investment demand has been strong on many fronts

The gold price has benefitted from strong investment inflows. Combined sales of 22k (Eagles) and 24k (Buffalos) gold coins by the US Mint, increased 51% YoY in the first quarter, while gold-backed ETFs had the second strongest quarter on record, with demand from the US, Europe and China and other regions rising by a combined 363 tonnes (Chart 2). Net long positions on COMEX, 2 the world’s largest gold futures exchange, had its largest quarterly average increase since the Q4 2009. Anecdotal evidence suggests that, in contrast to increases in investment flows in the recent past, investor interest is broader based, coming from both retail and institutional investors.

Chart 2: Gold-backed ETFs have seen their strongest inflows
since the 2008-2009 financial crisis

Global gold-backed ETF (and similar) flows*

The start of a new bull run for gold?

Historical analysis of previous bull-bear market cycles is also encouraging.3 Gold has experienced five bull markets and five subsequent bear markets since the 1970s4 (Table 2). Previous bear markets (excluding the current one) have had a median length of 52 months, during which the price of gold declined between 35% and 55%. As of December 2015, gold’s price pullback was already in line with the median length and magnitude of these previous bear markets

History also shows that two consecutive quarters of strong returns have typically resulted in a more sustained rally. So far, we have had one very strong quarter. But inflows into gold look, to us, set to remain robust in second quarter, as the current macroeconomic environment remains supportive for both investment and central bank demand. The interconnectedness of global financial markets has increased the likelihood of successive economic crises and market contagion, in our view. In addition, the prolonged presence of low (even negative) interest rates has fundamentally altered the way investors think about risk.

Table 2: Gold has experienced five bear and bull cycles since the 1970s*

This Report can also be downloaded here.


You can find detailed, up-to-date pricing for gold coinsbars/bullion, and gold scrap, all in both NZ$ and US$, here »


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closing prices
Source: Kitco
closing prices
Source: Kitco
closing prices
Source: Kitco
closing prices
Source: Kitco

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