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The Gold Rally is Far From Over ... CNBC.com Editorial

cnbc.com - Mar 18, 2016

The gold rally is far from over.
Trey Reik, senior portfolio manager at Sprott USA
Friday, 18 Mar 2016 | 9:54 AM ET

The performance of gold during 2016 has caught many investors by surprise, outperforming all major asset classes.

Given the strong performance of gold and gold equities so far in 2016, it is instructive to examine factors contributing to this strength and assess their likelihood to continue in the future. With respect to the performance of gold bullion, during the past two-and-a-half years, staunch global physical demand has been carving out a durable price floor for gold in the general vicinity of $1,100 to $1,200 per ounce.

The only ingredient missing from a sustained advance in the price of gold has been weak western investment demand, in an environment of persistent strength in U.S. financial assets. In essence, when the S&P 500 index sets ever increasing highs on a monthly basis, gold's allure will diminish reflexively to consensus. However, mounting concern that U.S. financial asset prices may be a bit extended, just as breadth and liquidity are receding, has opened the door to reevaluation of gold's role as an effective portfolio-diversifying asset.

Most recently, investor concern over negative interest rates appears to have lent some urgency to western investment demand—inflows to bullion ETF's have exploded in recent weeks.

During the first 10 weeks of 2016, gold ETFs have expanded their bullion holdings by about 9 million ounces (about 19 percent year-to-date growth), or twice as much as the 4.5 million ounces shed during all of 2015. Expanding our lens to include published bullion holdings for all ETF's, mutual funds and repositories (such as COMEX and TOCOM), bullion holdings have jumped about 18 percent year-to-date.

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- Posted: 2016-03-20 22:41:12

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