Tags: Ash | price | dollar | gold

BullionVault's Ash: 7 Factors' Impact on Gold

By Dan Weil   |   Wednesday, 06 Aug 2014 02:30 PM

Gold has traded up and down between $1,250 and $1,350 an ounce for most of the past six months, and market participants have mixed views about where it's headed.

Writing in The Telegraph, Adrian Ash, head of research at gold trading platform BullionVault, examined the relevance of seven factors often seen as determining gold's direction.

1. Inflation. In the past gold, tended to rise when inflation did. But gold soared from 2001 to 2011 with inflation under control.

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2. Interest rates. Gold pays no interest, so you might think that higher rates would hurt gold. But, "gold prices and interest rates have moved in opposite directions only half the time since 1969," Ash writes.

3. Stock markets. Similar to interest rates, gold has moved in the opposite direction of stocks in just 48 percent of all 12-month periods since 1969, he says.

4. Geopolitics.
Gold tends to rise for short periods after news of turmoil.

5. The dollar. Gold moves in an opposite direction to the dollar 60 percent of the time.

6. Oil prices. Gold and oil prices have moved in synch a bit more than 60 percent of the time in each of the years since 1986.

7. Asian demand. "Asian demand clearly follows prices, rather than setting them," he writes.

"What might boost or reduce the flow of investment money is a combination of all the factors above. But at root, long-term rises or falls in the gold price reflect a broader anxiety — whether about politics, the value of money, or the outlook for other, typically more productive assets."

Gold for immediate delivery lost 0.1 percent to $1,305.05 an ounce by 9:07 a.m. in London, according to Bloomberg generic pricing. It reached $1,309.52 Wednesday, the highest since July 29. Gold for December delivery declined 0.1 percent to $1,306.30 on the Comex in New York.

"Gold is getting the fear bid," Charlie Bilello, director of research at Pension Partners, tells Bloomberg. "Concern about a correction in the equity market is also bringing some people to gold."

Other experts see the situation remaining volatile.

"There are a lot of crosswinds going on for gold," Deutsche Bank's global head of commodity research, Michael Lewis, told Reuters. "You have long-term U.S. real yields going down to new lows and geopolitics, which should be supportive, but on the flip side you have dollar strength coming through and equities hitting new highs."

"Those various forces are working against each other, which is maybe why we're still in this rangebound market," Lewis said.

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