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Yellow Metal Shines: Will the gold rush continue?

January 2016

January 14, 2016 | 16:55 | Dubai

Has gold got its groove back? Seeing the comeback of the yellow metal, it seems gold is now the safe harbour in the choppy waters. Gold prices have rallied around 3% year-to-date and have broken   $ 1,100/troy oz level early this month, the first time since November 2015.

Last year, gold price declined by more than 11% in US dollar terms but not in all currencies. Gold ETF holdings fell 138.4 tonnes last year, their third consecutive annual decline as investors largely spurned gold in 2015. Most of the decline occurred in H2 2015 ahead of the widely anticipated move by the Fed. Inventories of gold on the COMEX system also fell in 2015, slipping by nearly 48 tonnes.

So what’s the outlook for the rest of the year?

Gold is one of the few commodity markets to have started 2016 with some vigour, gaining as risk aversion has been the tone of the first few weeks, noted a report by Emirates NBD Global Markets & Treasury on Thursday.

Market debate over when the next Fed hikes are coming will affect the trajectory of gold in general this year but while the current volatility persists, gold may continue to receive interest, it added.

The World Gold Council too in its latest investment commentary for 2016 adds that the effect that US rates have had on the gold price is overdone and may take a back seat this year.

“We believe that 2015 was an exception and not the rule. While the US dollar is certainly a significant driver for gold, there are two additional important points to consider: (1) it is not the only driver, and (2) it is not always the most relevant metric for most investors,” it noted.

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