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Q2 Gold price set for more upside moves

More upside moves are in sight for Gold in the second quarter, after the precious metal’s price gathered momentum in the first quarter.

Gold prices rise during safe-haven buying amid political risks such as Brexit. They are also boosted by fundamental demand from the manufacturing sector. The second quarter packs a punch from both of these factors.

Political risks proliferate in Europe and Syria and at the time of writing, the Gold price is heading up towards 1,270 USD per ounce.

Syrian conflict

US President Donald Trump is going head-to-head with Vladimir Putin over Syria. In fact, Gold hit a five-month high on 6 April after Trump ordered a military strike on a Syrian airbase.

The Syrian conflict has been simmering and boiling over for five years now. There’s little reason to think it will be settled in the second quarter.

It’s more likely that world powers will have to push for another ceasefire while the US and Russia argue over the way forward. Gold is still the safest investment haven to take during these kinds of political risks.

Demand rises

Elsewhere in the world, demand is picking up in Asia on the back of stronger growth in the first quarter.

India is expected to reach 7.4 per cent growth this year and is a powerful driver of gold due to jewelry manufacturing.

Expansion plans

Major jewelry producers in India are confident enough to expand their global operations.

Kalyanaraman’s Kalyan Jewellers Ltd is doubling its global stores. The jeweler plans to enter Saudi Arabia, Bahrain and other Asian markets.

China bullish

Adding to demand is China. Asia’s largest country is set for solid growth in March, according to a Reuters survey.

While it still lags India in terms of GDP growth, China is India’s biggest contender in gold consumption. Producers in China are feeling more bullish, with PPI expectations rising to nine-year highs.

EU growth prospects

Europe’s industrial sector is picking up steam after posting solid growth in March.

The EU’s growth has started adding significantly to the overall fundamental demand for gold.

All EU member states are expected to grow this year and inflation is creeping up. This is good news for manufacturer income and profits.

Eurozone factory activity was at six-year highs in March and PPI expectations are at 71-month highs.

Political risks were trimmed in the aftermath of the Dutch elections, so hedging with gold is limited from this perspective.

The bulls may still be satisfied if the French elections swing to the populist side. In this case, gold’s price is likely to move upwards in response.

Equity market Correction

There are downsides for the gold price in the second quarter. A more hawkish Federal Reserve is hovering in wait.

The markets expect it to swoop down with more rate hikes. Rising rates mean higher yields and a stronger USD versus a weaker Gold price.

On the other hand, concerns are rising over a long-expected correction in the equity markets. Should this happen, monetary tightening could slow down.

The complexities increase if we include the European Central Bank in our risk calculations. The ECB is hinting at tightening its monetary policy. This would likely give impetus to gold prices in the short term if it happens in the second quarter.

Overall, I’m still bullish on the yellow metal and highly recommend it as part of a diversified portfolio. However, looking ahead, prices may not appreciate over our base case scenario of 1300-1350 USD per ounce by the end of the year.