Strong demand from emerging markets, limited supply keeping gold prices up

Demand from emerging markets in particular is strong as currencies such as the Indonesian rupiah, the Malaysian ringgit and the Vietnamese dong has fallen sharply in the last 12 to 18 months against the U.S. dollar, prompting consumers in these markets to buy physical gold, which is seen as a haven in times of tumult. Aside from state buying, the Chinese public is also pulling money out of stocks after a slump earlier this year to put their money into gold, said Padraig Seif, chief executive of Hong Kong-based trading firm, Finemetal Asia.This has spurred a change in the market sentiment despite expectations of further rate hikes from the U.S. Federal Reserve this year, which would typically depress gold prices. The rally in gold prices has also been supported by a reduction in the availability of the precious metal.

Market sentiment has changed quite a bit…on the supply side, more and more bullion banks are pulling out of the bullion trade so on the supply side, you've got a decrease in supply; on the demand side you've got an increase. It's quite natural then that the gold price will go up. The  current macroeconomic environment includes a slowdown in China's industrial production and a potential crisis in the European Union if the U.K. exits the organization after a referendum in June.

The Market Vectors Gold Miners ETF is up 45 percent year-to-date.

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