After some smooth trading in the first half of the year, gold has been stuck in a relatively tight range of around $1,300/oz lately. Though strengthening U.S. economic activity and a strong dollar are weighing on the performance of the yellow metal, renewed geopolitical concerns are reinforcing its safe haven appeal across the board.
This is especially true as tensions escalate in Ukraine with increasing Russian military action on the border, aggravating relationship between Russia and the western world on harsher sanctions. The list of woes go on with the Argentina default, a bloody Gaza strip, Iraq violence, Chinese slowdown and a struggling European economy yet again.
Given that these concerns will likely continue at least in the near term, the bullion is expected to climb higher in the coming days. As gold miners trade as a leveraged play on underlying precious metals, they tend to experience more gains than their bullion cousins and are expected to emerge as the real winners (read:A Comprehensive Guide to Gold Mining ETFs).
In addition, the International Monetary Fund (NYSE: IMF) recently cut global economic growth forecast from 3.7% to 3.4% for this year based on weak growth in the U.S., China and some key emerging markets. The bleak outlook will lead to retraction in equities and propel the demand for the yellow metal higher. Moreover, increasing inflationary pressures are stimulating the appeal of gold as a hedge against inflation and a store of value.
Is there a Dark Side?
Nevertheless, the current global demand/supply dynamics are not in favor of the precious metal, suggesting rough trading for gold mining stocks. This is because gold demand in China, which overtook India last year as the largest consumer, dropped 19% in the first half of 2014. Sluggish demand for gold bars (down 62%) and gold coins (down 44%) outweighed the increase in jewelry demand (up 11%).
Further, the reiteration of 10% import duty on gold continued to dampen the demand ...
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