New York, US (BBN) – Gold has recorded a strong gain in the first quarter of 2017, with prices for the precious metal rising around 8 per cent.
This is the biggest quarterly gain since the first quarter of 2016, when the price rose around 16 per cent, according to data from ICE Benchmark Administration Limited, reports CNBC.
In fact, gold prices have made positive gains in 8 of the last 10 first quarters.
One of the main reason for gold’s gains is volatility hitting other assets, says Adrian Ash, head of research at Bullion Vault.
There’s also a cyclical reason for gold’s first quarter gains.
“It maps the repeated January jitters over the coming year’s political risks, plus the increasing weight of Lunar New Year demand from China – now the single busiest gold shopping festival ahead of India’s Diwali,” he told CNBC via email.
“Revived Chinese demand has now held the Shanghai premium (over and above the global benchmark of London settlement) at a strong $12 per ounce even since the Year of the Rooster began – some 4 times the typical incentive to new imports of the last half-decade.
That’s extended the physical support for gold prices which was so lacking late last year.”
Real interests rates (the interest rate minus inflation) are another major factor. According to US Global Investors CEO Frank Holmes, when real interest rates are negative, such as in the UK and the US, gold rises in that country’s currency.
“The greater the negative interest rate, the greater the price of gold rises.” He told CNBC’s Squawk Box Friday.
“The government’s only going to pay you 50 basis points for five years. Take away 2 per cent inflation, you’re losing 150 basis points.”
He suggests investors should have a 10 per cent weighting of gold in their portfolio and rebalance once a quarter.
Despite a recent interest rate hike from the Federal Reserve, real US interest rates have fallen.
Between November and February, it reached a 5-year low of minus 2.1 per cent, according to Adrian Ash.
“The Fed’s tough talking counts for nothing if its rates don’t keep pace with inflation. That’s why amongst major tradable assets only silver has outperformed gold this quarter, gaining 13.5 percent since New Year as a cheap way to play and defend against the Fed’s failure to keep pace with inflation,” he said.