Direxion Shares Exchange Traded Fund Trust was on a high-powered flight on Thursday as it shot to an intraday trading high of $101.29. The ETF later settled with gains of 13.25% at $99.90 – by then, the market had already made its point, gold is on the rise and there’s not much you can do to stop its ascent. The yellow metal has been on a bullish ascent since Monday and Thursday marks the fourth straight session of gains.
The reasons behind the rally in the bullion markets are not farfetched. High on the bullish factors supporting a rally in the yellow metal is the fact that the U.S. Federal Reserve did not raise interest rates in April and the first rate hike might not happen until June. The second reason for the rally was the fact that the Bank of Japan has surprised the global market by keeping its interest rate unchanged in sharp contrast to expectations that BOJ would retreat deeper into negative territory.
Gold climbs for fourth straight session
The decision of the fed to keep interest rates unchanged, its cautious stance, and the refusal of the BOJ to weaken the Yen has forced the US dollar to fall lower. A weak dollar often boosts the prospects of gold and the yellow metal is milking all the gains in the greenback for what it is worth. On Thursday, spot gold climbed 1.6% to settle at $1,266.50 an ounce and gold for June delivery gained 1.6% to close at $1.266.50 an ounce.
In the year-to-date period, the yellow metal has gained 17.14% to erase the losses that it recorded in 2015. Direxion Shares Exchange Traded Fund Trust has gained a massive 310.6% in the year-to-date. The rally in gold slowed down at the start of the second quarter – in the last one month, the yellow metal has gained 1.70% and Thursday’s gains records the highest closing price in the bullion since March 10.
It is worthy of note that analysts seem to think that gold had reached a bottom last year and that the rally will continue for much of this year. For instance, George Milling-Stanley, strategist at State Street Global Advisors notes that “in the continued absence of any surprises from policy makers, the gold price could still see further gains in 2016… A price of around $1,350 by year-end could be sustainable.” Nonetheless, I wouldn’t be surprised if the yellow metal runs into occasional volatility that pull the price down.
Crude oil also benefits from weaker dollar
The weaker dollar has lifted gold and the Direxion Shares Exchange Traded Fund Trust – but it is also lifting crude oil in global trade. Yesterday, crude oil had more reasons to climb partly because the prospects of a production freeze by OPEC and Russia looks brighter and partly because the BOJs economic policy has weakened the dollar.
U.S West Texas Intermediate (WTI) Futures gained 1.5% to settle at $46.03 and Brent crude gained $0.93 to $48.11 per barrel nearing its highest point since November last year. Dominick Chirichella, a senior partner at the Energy Management Institute observes “the perception view crowd are starting to call the oil market rally the beginning of what will be a long bull market… Clearly, the market is primarily focused on the forward supply-and-demand picture while continuing to push the bearish nearby fundamentals further into the background”.