Money managers who have been purchasing gold during the recent weeks, are now being rewarded with the biggest rally since January.
On Monday, gold fell 0.2 percent to $1,223.10 by 8.03am in Singapore. Last week, gold futures jumped 3.1 percent to $1,225.30 /oz on the Comex division of New York Mercantile Exchange - the most since January 16.
Weaker US consumer confidence and softening factory production drove the dollar lower for a fifth week. The Bloomberg Dollar Spot Index lost 1.2 percent.
Investors are now inclined to believe the Federal Reserve could wait longer before lifting interest rates, which gives more chances that inflation will accelerate. Record-low rates drive bullion’s appeal because the yellow metal doesn’t pay interest, in comparison with competing assets such as new bonds.
According to U.S. Commodity Futures Trading
Commission data, net-long position in gold surged 14 percent to 36,150
futures and options as of May 12. That was the third rise in four weeks and the
biggest gain since April 7.
In May, gold has recovered almost 4 percent as more signs of sluggish growth challenged the Fed’s optimism and drove betting that borrowing costs will stay low for longer. The regulator’s benchmark rate has been near zero percent since 2008. Rising oil prices have also brought investors back to gold, on concern that higher energy costs will boost inflation.
Although there have been some signs of contraction,
an improving labor market still gives the Fed an opportunity to lift rates
for the first time in almost ten years. US jobless claims declined by 1 000 to 264 000 in the week ended May 9, pushing the monthly
average to the lowest since April 2000, as Labour Department data indicated.
Chad Morganlander, a money manager at Stifel, Nicolaus & Company considers that the national economy is doing better than its global counterparts, and that will help the greenback to regain its appeal. The greenback's decline will be “short-lived”, while “global inflationary trends are lacklustre and global economic growth continues to accelerate”, he said.
Gold touched this year’s low in March as the Bloomberg Dollar
Spot Index climbed to the highest since the data begins in 2004.
In the previous two years, gold dropped 29 percent due to the strong greenback, while
inflation remained muted and the unemployment rate declined.
Harish Sundaresh, the Boston-based portfolio manager
for the Loomis Sayles Alpha Strategies team, says that there is a lot of conflicting data sending mixed signals to the
market, and that’s made it difficult for gold investors to make the
right move.
“Everyone’s been expecting a rebound in the US economy, at least for the past month or so. But now, the data is pretty soft, so the perception is that the Fed will wait a little longer to raise rates.”
