Why is gold price rising despite huge outflows?

Why is gold price rising steadily in spite of big outflows? Analysts believe that the huge outflows are offset by what is going in the market. 

10 January, AtoZForex Gold prices on Tuesday fluctuated below 5-week record, which has hit the session before on the weaker USD. Yet, the gold rally was limited by the increasing chances of the rate interest hikes across the US.

Gold prices pressured by Fed

Spot gold was trading at $1,181.81 an ounce, up 0.1 percent by 0054 GMT. It reached $1,185.80 on Monday, marking its highest level since December 5th. US gold futures were changing hands at $1,181.90 an ounce. The dollar index, which is measuring the greenback against a basket of six major currencies, slid 0.1 percent to 101.85.

According to Eric Rosengren, the Federal Reserve (Fed) President in Boston, the central bank might consider cutting the $4.5 trillion balance sheet to support the interest rates across the US. Moreover, this could diminish the negative influence of the firm USD on the US economy.

The recovery from the economic crisis is mostly finished, where the authorities should now focus on addressing the long-term issues. This includes the productivity matters, according to Dennis Lockhart, Atlanta Fed President. He further added that he still felt that the Fed might only need two rate hikes in 2017.

The yellow metal has been on a rollercoaster ride since the US election, where the bullion plunged straight after the 8th of November. Afterward, the precious metal started to steady stabilize.

Why is gold price rising?

In spite of its recent gains, the bullion just experienced its eighth straight week of outflows. The Bank of America Merrill Lynch reported that the gold believed to be ‘shunned’ by the investors. The report from the banks states that the eight weeks of outflows mark the longest outflow streak in the period of three years for the gold.

The gold price is often seen as a reliable asset for investors in times of high uncertainty. The prices of gold advanced almost 2 percent in the month prior to the US election. Then, it dipped over 5 percent in the following two weeks after the event. Such shifts are mostly appearing due to the investors’ capital reallocation. Stacey Gilbert, head of derivative strategy at Susquehanna, believes that this not a bad thing. She highlighted that approximately $6 billion of gold has left the gold market in just about two months. She states that this will not bring down the precious metal.

Yet, the smaller outflows that are the result of what is going in, are the reason the gold prices are on the rise. Ms. Gilbert has added:

“I don’t think it’s that investors are wrong; I think investors said, ‘I only have so much capital, I thought that this was a monetary stimulus type of environment.’ That has shifted,” she said, adding that “nobody has dumped it completely from their portfolio.”

Moreover, he stressed that the gold-related EFTs welcomed about $16 billion of inflows prior to the election. In spite of this, the yellow metal dipped 5 percent two months before the Election Day.

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