Now that gold has experienced its best single-quarter performance in three decades, the question remains: How long can bullion keep gaining?
In a new report titled Gold outshines the market in Q1 2016, the World Gold Council is bullish on the second quarter. We may be entering a new bull market for gold, it wrote.
Five factors helped drive gold to a 17% advance in the first quarter that beat all other major asset classes, the WGC notes:
- concern about economic growth and financial stability in emerging markets;
- a pause in the dollars rise;
- the increasing use of negative interest rates;
- strong investment demand; and
Those factors should remain in place, the WGC said. And with U.S. Mint gold-coin sales, surging near-record inflows into gold ETFs, and a huge increase net-long futures positions on the Comex, the council is predicting increasing investment from both the retail and the institutional (particularly central-bank) sectors.
If gold can sustain its momentum for a second straight quarter, it should have the wind at its back and make the case for a renewed bull market in 2016. The metals roughly 52-month bearish trend since the price peaked in September 2011 has lasted about as long as previous bear markets in gold, the council noted.
But even more importantly, 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 WGC also noted the potential for the next financial crisis to spill over into interconnected global markets, thus increasing golds appeal going forward, as well as the preponderance of negative rates in major economies to drive investors into alternative investments.
Therefore, based on the World Gold Councils analysis of golds first-quarter resurgence, the answer to the question of whether gold could seal the deal on two winning quarters in a row is a resounding yes. Time will tell.