The future of gold prices seems inextricably linked with the US Federal Reserve’s decisions over interest rates.
Traditionally, investors turn to gold in times of economic woe as a hedge against falling stock markets.
Gold is seen as easy to turn to cash and can easily be stored and transported during times of crisis.
But that splendid isolation looks lost as the price moves depending on the stance of the US Fed.
A leading analyst sees prices set to fall as US interest rates ready to rise.
“The price of gold over recent months seems tied to reaction over when the US Fed intends to hike interest rates,” said Luc Luyet of fund and asset manager Pictet.
“The thinking seems to be higher interest rates push down the price of gold.”
Stuttering prices
Luyet explained that as gold comes with no credit risk and is a non-yielding asset, the US Fed holding off on interest rate rises has supported the value, but talk of raising rates and the strengthening of the dollar is likely to lead to a lower price.
“Our view is gold will stick around $1,000 an ounce in the medium term,” said Luyet.
Although gold as an investment is likely to stutter in price, the metal in other forms is expected to remain strong – especially the call for jewellery from China and India, which add up to around two thirds of global demand.
“Demand in both countries is seasonal and is likely to hold up prices in the short term,” said Luyet.
“Families see gold as an indicator of wealth and prosperity. In India, exchanging jewellery is popular at weddings and festivals which take place later in the year to avoid the heat and the monsoon season.
“In China, the demand is around the New Year, which is in February 2016.”
As a result of the Fed’s intention to hike interest rates and seasonal demand for gold, the value is expected to hold until the spring – and then to sit still.
Copper bottoms out
Copper bottomed out at a six year low as poor economic data from China hinted that manufactures are likely to reduce demand for the metal.
Not only is demand tapering off, but China is known to have stockpiles of copper and other commodities.
NASDAQ trading halted with copper at US3.08 a pound after flirting with a low of $2.22.
