Two months into the year, gold prices have seen a steady rise, with slight fluctuations, and the market for the metal is bullish. The stock market is uncertain and dollar values are oscillating, and more investors are looking towards gold.
Gold has traditionally been a safe haven for investors, and equities are usually the investor’s favourite. But with unstable global economic conditions, people are moving towards safe investment options and minimising risks. Gold has seen a rise of up to 16% in the global market, and is on its best run in 36 years.
Gold price situation
Let us look at some shiny figures to see how gold has fared so far in 2016:
- SPDR Gold Shares, the world’s largest bullion exchange-traded fund, received $4.55 billion in new money in 2016, as per data from Bloomberg on February 28.
- Global holdings in gold exchange-traded funds rose by 15% in 2016 to 1,682.6 tonnes, the highest since October 2014.
- Spot gold prices as on March 2, 2016, were $1,240.90 an ounce.
Reasons for rising gold prices
The primary reasons for this climb in gold are: deteriorating economies, weakening of US dollar, and expectations that the US Federal Reserve (Fed) will not make many changes to the bank rates this year.
In fact, some financial experts believe that the Fed will decrease its rates this year. Central banks of other countries, such as in Europe and Japan have already lowered their rates. Many other central banks – such as the RBI in India – are expected to make rate cuts soon.
These rate cuts are leading to lowering of values of major currencies. Because of this devaluation, gold prices have started to look very good. After all, zero or low returns are better than losses.
Apart from the economic conditions, the basics of supply and demand are in favour of gold. Gold mining has decreased in the last few years, with 2015 witnessing the slowest growth in gold production since 2008. Some experts believe that supply of gold will come down by 15-20% in the next four years. Meanwhile, gold demand from Asian countries – especially China and India, the largest consumers of gold – is almost stable if not rising.
Analysts have varied forecasts for gold in 2016. Georgette Boele, a strategist at ABN AMRO Group NV, predicts that gold will rise to $1,300 per ounce by the end of the year. Barnabas Gan, an economist with Oversea-Chinese Banking Corp., says the metal could hit $1,400 per ounce by the end of the year.
However, he says that gold’s surge would depend on Fed raising or lowering interest rates; if the rates are hiked, gold could slide to $1,150. It would also depend on improvement in the global fiscal weather – if economic growth picks up pace, gold will lose its lustre as the safe refuge. Many experts feel that gold prices will retreat to $1,000 by the end of the year as the market conditions improve.
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