Investors View Gold as Opportunistic Short-term Investment in Specific Markets

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CORONAVIRUS IMPACT

During the first three months of 2015, commodity net inflows reached roughly $7 billion, strongest level in 2.5 years, but Barclays’ analysts doubt the continuity of the trend.

“Almost as rapidly as they appeared, the strong investor inflows and healthy commodity beta returns vanished again,” said commodity research analysts in a report.

“March and April saw a combined net outflow of almost $3bn. And after registering its strongest monthly return for five years in April (+11%), the benchmark S&PGSCI has now returned to negative territory, down approximately 2% in May-to-date, with oil prices acting as a drag rather than a support,” they added.

However, the precious metals sector managed to modestly attract investors while the energy, base metals and agriculture sectors all suffered net outflows.

“In contrast, precious metals drew inflows of $497mn, but the inflows were modest compared to the net redemptions exceeding $1bn in March,” they noted, adding that gold investors, in particular, shifted focus on the timing and pace of the Federal Reserve’s first U.S. rate hike.

“While our economists believe June is a ‘live’ meeting, they believe the first hike is slated for September,” they said. (Read more: Interest Rates Hike Seem More Distant)

Looking at other precious metals, analysts noted that silver and palladium attracted investor flows as well, which were up by $79 million and $73 million, respectively.

“We expect flows in gold and silver to come under pressure as we approach September, particularly given inflows this year alone are already loss-making,” they said. Still, the short-term up trend remains intact.

According to the bank’s analysts, net outflows for the commodity sector in general are expected to continue for the next few months given that the fundamental outlook looks bleak.

“Clearly the early year inflows from investors have not proved especially sticky and are a guide to the way that investors now view commodities: as opportunistic short-term investments in specific markets rather than broad long-term portfolio exposure for diversification.”

Barclays’ price forecast for gold in the first quarter stands at $1,200/oz and analysts expect prices to average around $1,170/oz by the last quarter of this year.

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