Gold Outshines the Market in Q1 2016

Gold returned to favor with investors in the first quarter of 2016, rising 17% for its best performance in nearly 30 years. The yellow metal outperformed most other asset classes in the first quarter, according to a report released Thursday by the World Gold Council (WGC).

The WGC believes that uncertain markets and expansionary monetary policy are set up to support continued investment and central bank demand for gold. Demand for U.S. Mint gold coins rose 51% year over year in the first quarter, and gold-backed exchange traded funds (ETFs) experienced their second-strongest quarter ever. Both retail and institutional investors are believed to have been behind the increased investments in gold.

The council noted five factors that contributed to the rally in gold:

1. Ongoing concerns about economic growth and financial stability in emerging markets
2. A hiatus in the rise of the US dollar
3. The implementation of negative interest rate policies by leading global central banks
4. The return of pent up investment demand for gold
5. Price momentum (i.e. investors following gold’s upward trend)

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The WGC is also bullish on a continuation of the gold run in the second quarter and the beginning of a new bull run for the yellow metal. Citing historical data on previous market cycles, the WGC notes that two consecutive quarters of strong returns typically lead to a more sustained rally in gold:

So far, we have had one very strong quarter. But inflows into gold look, to us, set to remain robust in [the] second quarter, as the current macroeconomic environment remains supportive for both investment and central bank demand. The interconnectedness of global financial markets has increased the likelihood of successive economic crises and market contagion, in our view. In addition, the prolonged presence of low (even negative) interest rates has fundamentally altered the way investors think about risk.

Gold settled at $1,223.80 on Wednesday and traded up about 1.3% at $1,240.40 Thursday morning. The 52-week range is $1,047 to $1,288.

The SPDR Gold Shares ETF (NYSEMKT: GLD) has added more than 15% year to date, and it traded at $116.94 Thursday morning.