Gauging the Recent Macroeconomic Plays on Gold
Consumer confidence climbs
Although markets were stuck with pessimism as the healthcare bill failed expectations, markets slowly started reviving from their losses on Friday, March 24. The resurgence of the US dollar in addition to the higher yields and recent rebound in the equity market had caused the haven appeal of gold to fall at the end of 2016 and the beginning of 2017.
Then the consumer confidence index, which measures the level of a composite index based on surveyed households, went positive on Tuesday, March 28. The reading stood at 125.6, strongly surpassing the analyst expectation of 113.9.
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Remember, higher confidence is very beneficial for currency as well as for the overall economic sentiment of a country. Notably, the March 28 figure was much higher than the 116.1 level we saw in February 2017 and marked the highest level we had seen since December 2000.
Physical demand slowing
As we know, the higher federal funds interest rate recently gave a positive kick to the US macroeconomic environment, and this event pulled precious metals down. We can meanwhile be relatively confident that if the interest rate hikes continue, it will likely have an adverse impact on these metals.
But on the demand side, Indian and Chinese appetites for physical gold have been slowing, and this may also play negatively on the metal. The overall emerging market demand has not yet picked up significantly. While China has shown little demand, the Shanghai Gold Exchange has seen slight growth in volume.
However, the iShares Gold Trust (IAU) and the iShares Silver Trust (SLV) have increased 0.5% and 3.4%, respectively, over the past five trading days. Mining shares that also witnessed positive returns during the same time frame include Hecla Mining (HL), Silver Wheaton (SLW), Royal Gold (RGLD), and Rio Tinto (RIO). Together, these miners make up about 10.9% of the price changes to the Vaneck Vectors Gold Miners Fund (GDX).
Continue to the next part for a look at GLD’s recent fund flows.