To sort out gold price fluctuations, it makes sense
to consider three broad drivers –
US Dollar-Gold inverse relationship:
Expectations of fewer Fed rate hikes in 2016 have reduced
bullish bets on the dollar and the dollar index has weakened in the first quarter. This is
usually good news for gold (as it tends to move inversely with respect to the
dollar index).
http://www.bloomberg.com/news/videos/2016-05-04/the-dollar-dilemma-driving-the-gold-market
Fed rate hike projections – 2016
http://www.cnbc.com/2016/05/11/for-the-fed-to-hike-rates-history-and-market-are-all-that-really-matters.html
Speculative bets (investors worried about central bank
actions – negative rates, weak global growth – and looking for a hedge):
Physical gold demand from Asia (the
consumption angle):
My take:
The bullish case for
further gold price increase in 2016 depends on further monetary restraint from the Fed (no June rate hike) and relative dollar weakness. An area of concern is
weak demand for physical gold from Asia.