Gold was trading above the $1.200 level

Eugen Weinberg, Head of Commodity Research at Commerzbank AG, on gold

Gold price has grown noticeably, forming a highly volatile uptrend since the 2015 lows at around $1,145. Last week, gold was trading above the $1.200 level, supported by the weak US economic growth. In addition, the price is also likely appreciating since the start of the Indian festival Akshaya Tritiya. What economic data should investors keep an eye on in the nearest future?

That is a very good question, since gold is not being moved by the mining supply news or jewelry demand, but the economic news. Most specifically, the US and the Euro zone news make the most sense, as the market can compare the generally stable gold prices in the US Dollar terms versus the continuously appreciating prices in the Euro. Currently, prices are fluctuating around the highest levels in more than 2 years, already above the 11.000 EUR. Therefore, investors should keep an eye on the economic data coming from the US and Euro zone and their equity market volatility to be aware of the upcoming changes.

China, the second greatest gold consumer, is witnessing an economic decline as its GDP slowed to a six-year low of 7% in the first quarter of this year. Moreover, the industrial production growth dipped to a post-crisis low of 5.6% in March and exports registered a contraction. Keeping all the figures in mind, how do you evaluate the Chinese impact on the precious metal?

Generally, it is actually very difficult to calculate the exact impact of Chinese economic changes to the yellow metal. The reason is not only due to the lack of data, but also because we are not sure on what are the most important driving forces behind the gold demand in China. It could be the actions behind the Bank of China, the wealthier part of population or investors’ interest to buy the metal as a save heaven. Until we know exactly who is buying the commodity, it is hard to evaluate the Chinese impact.

During the recent years, the key market mover was the Chinese economic growth, which, on the other hand, seems to be slowing down currently. Thus, keeping the situation in mind, it should not be a surprise to see a lesser demand growth from the Asian population. At the same time, increased volatility in the Chinese equity market is possible, if not likely. In case that happens, investors will be looking for a shelter in gold as a safe-heaven. Moreover, the Bank of China will probably continue to buy the asset, despite their denials of being on the long side for gold.

What is your general prediction on gold performance and where do you see the price by the end of the Q2?

We suppose the gold prices in Dollar terms are likely to remain stable over the next month, despite the clear possibility of the US interest rate hike and the strengthening Greenback. Meanwhile, in terms of the Euro, gold will likely to further gain some value not only for the next quarter, but also for the upcoming ones. Moreover, as long as the ECB monetary policy remains unchanged, the gold price should be well supported.