Gold started 2016 with prospects of becoming the most promising raw material, but now the situation is changed and investors withdraw their interest from the gold at the fastest pace in three years. During the last month, exchange-traded funds (ETF), backed by precious metals recorded a net outflow amounted to 6.24 billion USD after the price of gold tumbled to 10-month low. Meanwhile, ETFs linked to shares in the capital markets, enjoy investment inflow amounted to 75.8 billion USD, which pushed the index Standard&Poor’s 500 historical peak.
The exchange-traded funds on precious metals still, however, reported a net inflow for the year amounted to 26.4 billion USD. The outflow of funds started after the elections for US president and Donald Trump’s victory.
The fund managers have better returns elsewhere. The yields on government bonds rose amid growing expectations the US Federal Reserve to raise interest rates. All this makes the possession of gold and silver less attractive because they pay no dividends.
The gold experienced a successful period in 2016, until Trump was elected for new US president. Previously, the price of non-ferrous metals rose by 20%, heading for its first annual growth from 2012 amid signs that interest rates will remain low. This boost investment in ETF on precious metal, which attracted 13.6 billion USD in the first quarter, which was the highest level in seven years.
After election rally the gold prospects deteriorated. In New York futures of the yellow metal fell by 8.1%, touching a 10-month low of 1,158.60 USD per ounce on Monday.
Trump’s promise to cut taxes and increase spending on infrastructure to boost the economy has been adopted by some investors as a bullish outlook for riskier assets. In November, the investors withdrew 4.67 billion USD from ETF on gold, which is the biggest outflow since May 2013.
The gloomy picture does not end with this. Citigroup Inc predicted that gold prices will average 1,135 USD per ounce in the second quarter of 2017, which is 10% yoy decrease amid expectations for a change in interest rates by the Fed this month and more twice in 2017.
Some analysts are not convinced that the rally in metal color is completed. The larger infrastructure spending in the US and low interest rates worldwide may accelerate the pace of inflation that will revitalize demand for gold as an alternative to other assets. According to their forecast, the price of gold may rise to 1,300 dollars in the fourth quarter of 2017 and reach 1,400 dollars in 2018. There are other factors that can awaken the appetite for gold – a trade war between the US and China, uncertainty surrounding elections in Europe, the instability of the Italian banking sector and complications of Brexit. All they can again increase demand for gold.
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