Delay in Fed policy is not the only bullish factor for gold - Analysis

Delay in Fed policy is not the only bullish factor for gold - Analysis

7 April 2015, 17:15
Alice F

Sooner or later, the Fed rate hike will come, and gold investors have to make peace with it. However, is the delay in the rate hike the sole bullish factor influencing gold price?

Kitco analyst considers there is a lot of bullish fodder floating around the gold markets that will make an impact in the long term.

Gold reserves run out?

Goldman Sachs recently issued a report which is widely discussed today, in which European metals and mining analyst Eugene King estimated there is only 20 years of known mineable gold reserves remaining.

Demand from Asia

The recent Australian ANZ research reported a shift to new all-time highs in gold in the years ahead driven in large part by huge demand from Chinese consumers, along with rising demand from central banks and institutional managers looking for a shelter in an uncertain world.

Individuals purchase gold

A 151.4% jump in American Gold Eagle sales during the month of March over the previous month was recently announced by the US Mint.

Sales totaled 46,500 ounces last month up from 18,500 ounces in February.

US stock bull is six year-old

The S&P 500 has been rising since the March 2009 low. Gold has rallied alongside stocks for much of that time.

Gold was pushed higher by a multitude of factors including safe-haven buying during the global financial crisis of 2008, massive QE policies by the Federal Reserve which jacked up the Fed's balance sheet from $850 billion prior to the crisis to a record size over $4 trillion.

Historically - the 1970's is an example when investors preferred commodities or hard assets over stocks and bonds or paper assets - the typical relationship is for gold to trend in the opposite direction from stocks as investors seek alternative assets and safe havens during major bear markets. However, as Kitco analyst writes, the unprecedented nature of the global financial crisis of 2008-2009 brought the relationship between the gold and stocks to a new level.

If the stock bull turns into a stock bear after Fed's rate hike, investors will turn toward gold as a traditional safe-haven and alternative hard asset as paper assets decline in value.

With fears flourishing around the amount of gold reserves, expectations for huge Asian demand around the corner and a U.S. stock market that is vulnerable for a turn, gold is now looking relatively cheap if compared to what could lie ahead.

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