Quarterly statistics commentary Q1 2012. Rising price in all major currencies with yen investors benefiting most.
All American Investor
The primary macroeconomic events that shaped Q1 2012 for gold were broad-based US economic data strength, China slowdown concerns, ECB (European Central Bank) bank loans and future European bailout potential. In an eventful quarter for the global economy that saw increased volatility in capital markets, gold finished the quarter materially higher despite a number of headwinds.
- Rising price in all major currencies with yen investors benefiting most:
Gold prices climbed 8.6% QoQ in US$/oz on the London PM fix, despite a number of headwinds. Though the quarterly return was almost twice the ten-year average of 4.5%, similar gains in gold were seen across all major currencies with yen investors seeing a gain of 16.1% in local currency terms.
- Positive volatility for gold in stark contrast to negative volatility for commodities:
While gold's price volatility was elevated, it continued to exhibit a positive (upside) skew. Gold's annualized volatility measured 20.4% during Q1, registering 21.8% on the upside and only 16.4% on the downside.
- Long-term correlation of gold to equities remains statistically insignificant:
Despite higher than average short-term correlations to equities and other risk assets during the quarter, gold's performance remains independent of risk asset performance. Regression analysis shows that gold may, at times, move in the same direction as equities, but these moves are almost always related to other macro factors, such as, gold's negative correlation to the US dollar.
Gold’s long-term price trend is maintained during Q1 2012
Q1 2012 saw the gold price rise 8.6% to reach US$1,662.50/oz on the London PM fix by quarter-end on 30 March (Chart 1). The average price for the quarter was marginally higher than Q4 2011 (+0.2%) and 22% higher on a year-over-year basis, as drivers of gold demand and supply continued to support its long-term trend. This performance was echoed in all major currencies. Local Japanese investors benefited the most as a weaker yen on investment outflows for foreign acquisition and a Bank of Japan commitment to quantitative easing saw gold rise 16.1% in local currency terms.
Q1 2012 was characterised by generally strong performance across multiple asset classes such as equities and commodities supported by a number of factors including broad-based strength in US economic data, ECB support for European banks through its longer-term lending programme, upward pressures on oil prices and portfolio re-allocation, primarily among fund managers.
During the first quarter, global developed market equities excluding the US returned 11.4%; The S&P 500 climbed 12.1%, US real estate rose by 9.8% (DJ US REIT Index) and commodities (S&P GSCI Index) rose 5% with strength in gasoline, oil, silver and soybeans and weakness in coffee and natural gas. By contrast, government bonds fell 0.9% with 10-year US Treasury bond yields leaping 33 basis points (almost 20% higher) during the quarter (Chart 2). However, while price moves suggest a decisive change in direction following poor risky asset performance in 2011, equity trading volumes underlying the returns were lower than multi-year averages partly reflecting only a tentative commitment to the renewed positive sentiment. Commodity moves, by contrast, were strongly supported with aggregate volumes in the constituent futures contracts of the GSCI Commodities Index at close to record highs. Allocations to commodities are likely the result of greater visibility of US growth following a revival in economic data, enduring pressures on supply in a range of commodities from soybeans to crude oil and a belief that any brief emerging markets slump will be mild – with a resumption of demand growth around the corner.