Gold price heads into New Year with familiar worries

London (Dec 31)  Spot gold was hanging around US$1,062 compared to US$1,184 at the end of 2014 a decline of around 10%. Barring an eleventh hour rally, gold was heading for a third year of decline in dollar terms.

As London markets closed down for the New Year, spot gold was hanging around US$1,062 compared to US$1,184 at the end of 2014 a decline of around 10%.

Gold has not performed as badly as other metals, especially bulks and bases or even platinum which has slumped 27%.

But with more US rate hikes expected in 2016 the bears say that many of the headwinds that have buffeted the metal since its 2011 high remain just as strong.

Fawad Razaqzada at spread bet firm City Index suggests recent resilience after the US Fed’s rate hike is not a sign of a potential recovery ahead.

“If anything, the lack of a more significant bounce here is quite bearish.

“Gold’s hesitation to go further lower has coincided with the dollar heading generally lower this month.

But once the holiday period comes to an end this may change.

“If the market strongly believes that the Fed will continue to raise rates as set out in the FOMC’s latest economic projections, the dollar may continue to push a lot higher since most other major central banks are still very dovish.”

The start of 2015 saw western institutional investors selling and consumers in Asia buying, a pattern that some expect to repeat in the coming year.

Which of these influences is the stronger will determine the price, say traders, and especially how much more selling there is to come from exchange traded funds. where holdings in SPDR Gold Trust, the largest of the gold-backed ETFs are already near seven-year lows.

Industry flagwaver the World Gold Council remains optimistic nonetheless pointing to high stock market valuations, concerns over Asian economic growth and the introduction of pro-gold schemes and potentially a gold exchange in India similar to efforts by the Shanghai Gold Exchange (SGE) to open up the Chinese gold market to international investors as demand catalysts.

Source: ProactiveInvestors