Demand for gold and the corresponding SPDR Gold Trust (ETF) (NYSEARCA:GLD) are waning and this can be partly blamed on a growing appetite for riskier investments. U.S. housing data for April was strong enough to convince analysts and investors that a Fed interest rate hike was in view. Higher interest rates drive up demand for stocks and debts and gold is left in the cold as its safe-haven appeal fades.
Gold for June delivery on the New York Mercantile Exchange’s Comex division pulled back massively to sink to an intraday low of $1,222.50 a troy ounce, the lowest price point for the yellow metal in more than a month. So far in May, gold futures are down about 5%, showing just how quickly the precious metal is losing its appeal. In 1Q2016, gold rose to a 30-year high at a time when investors feared that the Fed would hold off rate increases over weaker economic data. But the sentiments have changed as recent data increasingly support rate increases without fear that such a move could undo the U.S. or the global economy.
The most recent economic data from the U.S. was for April home sales, which were showed to have increased faster than any time since 2008.
More Fed officials are expected to speak this week and their talks are expected to be pro interest rate increase.
Rising crude oil prices
The recovery of oil and iPath S&P GSCI Crude Oil Total Return (NYSEARCA:OIL) prices has also added to the pain in the gold market. Oil prices edged up close to $50 a barrel in Asian trading hours amid reports of shrinking U.S. crude production. Disasters such as the Canadian wildfire that has incinerated vast oil regions are also expected to remove some oil supply from the global market. As militants like Boko Haram continue to wreak havoc in Nigeria’s oil region, investors are betting that the country’s oil supply to the global market will be disrupted, thereby helping ease the glut and lifting prices.