Some believe gold is poised to rebound from a hard 2015 as investors rethink the likelihood of future rate hikes from the Fed.
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The latest blow to gold was sparked by the Federal Reserve’s decision to raise interest rates for the first time in almost a decade.
While higher borrowing costs cut the appeal of owning bullion, which doesn’t pay interest, traders and analysts surveyed by Bloomberg expect higher prices as policy makers stress a gradual approach toward further raising rates.
Spot gold was up 0.5% at $1,056.10 a troy ounce in morning European trade, hovering near six-year lows.
Gold and the dollar typically move in opposite directions, which means if the dollar goes up, gold futures will fall as gold, measured by the dollar, becomes more expensive for investors holding other currencies.
Gold’s heyday was during the 2008 crisis when people flocked to the metal as people feared a collapse of the global financial system and stocks crashed.
Short-dated US Treasury bonds rose in price, easing yields down from the multi-year highs hit after the Federal Reserve raised its key interest rate from 0% on Wednesday. “Given the uninspiring chart patterns, we have to suspect that the path of least resistance remains lower still for the precious group as a whole, exacerbated by a stronger dollar and a more aggressive Fed”, Meir said.
On the other hand, gold saw little interest, with investors sending the yellow metal to $1,047.25 in the previous session, close to a near-six-year low. With gold near the cheapest since 2010, some traders say prices may be near a bottom as the focus shifts to the timing of the next rate increase.
These analysts are potentially ignoring inflation as a factor, which has greater influence on the value of gold.
When the cycle turns, gold will have its day again.
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“In the coming days and weeks, the downside in precious metal prices may be limited due to low activity as a result of Christmas and New Year”, Amro said. But the price of gold in 2016 will very much depend on how rapidly the Fed decides to tighten monetary policy, and gold could continue to experience a hard time before the Fed signals that this hike will be the last for some time. Another large jump occurred as gold gained about 375 percent from mid-2004 to August 2011, reaching an all-time high of about 1,900 dollars.
