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Weekly Gold Report

15-Mai-2017 / By BlackRock

Gold had a benign week, closing slightly down at $1,224/oz.

Performance Tables (all figures in US$, source DataStream)

Weekly Gold Report

Source: DataStream

Summary

Gold had a benign week, closing slightly down at $1,224/oz. The Macron win in the French election had little impact on gold at the start of the week as the result had been widely expected. With the probability of a Fed rate hike in June now 100% (according to Bloomberg data), any negative US data relative to expectations would likely be supportive for gold, especially if it also coincides/ causes a sell-off in US equities and an increase in volatility. Just looking to next week, it is very light on the macro data front so gold is likely to take its direction from any material change to the “risk-on” and low volatility environment we currently observe in equity markets.

Gold & Gold Shares

Gold chart

Source: DataStream, data to 11th May 2017

The chart above shows that in more recent periods, gold shares are exhibiting a higher beta to moves in the gold price.

Outlook

We expect to see a relatively range-bound gold price environment over the next 12 months but with upside surprise risk. Global economic growth appears to be improving which is likely to be supportive for broader equity markets and could act as a headwind for gold. However, we see a lot of uncertainty today, given events such as Brexit, the new US administration and unrest in the Eurozone, and this doesn’t appear to be being priced into financial markets today. With broader equity markets at all-time highs after an extraordinary bull-run that has appeared to have been fuelled by monetary policy, we continue to believe in the importance of an allocation to gold equities. Other variables to consider include the US dollar, the outlook for which is relatively robust, given the US is on a tightening cycle and monetary policy elsewhere is loose; the gold price and the US dollar typically exhibit a negative correlation. Over the longer-term, we expect the general trend of the gold price to be an upwards one as rising incomes in emerging markets support retail demand and the absence of new, large gold discoveries constrains supply. Gold equities are trading at attractive free cash flow multiples today as strength in the gold price has coincided with the companies having made strong progress in terms of improving their balance sheets and reducing costs. We expect gold shares to continue delivering the beta to the gold price that investors look for.