In Depth

Gold price waits for rates clues from Jackson Hole

Political turmoil in the US has the potential to 'help gold in the short and longer term'

 

Gold price falls as US dollar rebounds

9 April

Gold prices have fallen sharply as the US dollar continues its recovery and global shares rise.

The price dropped by 0.66 per cent on Tuesday to close at $1,210.60 per troy ounce, and after a clawing back a little of its value in intraday trading on Wednesday, hovered around $1,200 in the US today. At 1pm BST it was down $1.73 at $1,199.43 per ounce.

The gold price has dropped for three straight quarters as investors go in search of higher returns in equities. A stronger dollar has discouraged foreign gold buyers, further hitting the commodity's value.

The US dollar recovered lost ground on Tuesday, Reuters reports, as trading desks came back to full strength after the Easter weekend. Stock markets around the world also rose, "as investors moved into riskier assets for a second straight day", the Financial Review reports.

Last week, the gold price fluctuated in the run-up to the release of US payroll data on Friday, which is viewed as an indicator of how well the American economy is faring. When it arrived, the data indicated that payroll employment increased by just 126,000 in March, far short of the expected increase of 245,000.

Analysts say that the weak result could delay an interest rate increase from the Federal Reserve. Higher interest rates would hurt gold, which traditionally struggles to compete with yield-bearing investments when rates rise.

Last month the Federel Reserve's announcement that it was in no hurry to increase interest rates had given gold prices a lift, but two weeks ago, Fed chair Janet Yellen suggested that an increase in the benchmark rate "may well be warranted later this year" because of sustained improvement in the US economy.

Meanwhile, MarketWatch reports that the world could run out of minable gold within 20 years.

According to Goldman Sachs, new discoveries of the precious metal may come to an end in the next two decades. The same will be true of diamonds and zinc, the firm suggested. Platinum, copper and nickel reserves are also expected to be exhausted in the next 40 years.

"The combination of very low concentrations of metals in the Earth's crust, and very few high-quality deposits, means some things are truly scarce," Eugene King, European metals and mining analyst at Goldman Sachs, said in a recent note.

"Gold has been used as a measure of wealth for more than 4,000 years, as the ancient Egyptians soon worked out that gold was not only shiny and heavy, but rare," he added.

The relative scarcity of precious metals is what powers their price, and is also what makes the market believe that new discoveries will be limited, King said. 

Some analysts believe that gold production will hit its peak this year. "Peak gold is not a new concept at all," said Peter Grant, an analyst at precious-metals dealer USAGOLD told MarketWatch. "Mining output has been fairly flat for years, but new discoveries of gold have been falling rapidly."

Gold price slips amid talk of US rate rises

30 March

Gold prices are heading for a second consecutive monthly fall as a rise in US interest rates appears ever likelier.

US Federal Reserve chair Janet Yellen signalled last week that the US central bank will raise interest rates later this year, meaning that cash and the US dollar may become a more attractive proposition for investors.

The gold price dropped again today, continuing a recent downward trend that followed a period of gains. At noon it was trading at $1,185 per ounce, down from $1,193 on Thursday.

The precious metal had risen for seven consecutive sessions after the Fed's meeting earlier this month – its  longest rally since 2012 – which led to a policy statement in which it said it was prepared to move more slowly in hiking US rates than the market expected.

Demand from China and India also fuelled gold's earlier climb, according to the Business Standard.

However, on Friday, Yellen said that an increase in the Fed's benchmark rate "may well be warranted later this year" because of sustained improvement in US economic conditions.

Her intervention is likely to result in a sustained fall the gold price, traders have said.

"Yellen's latest comments might just change the course of gold and cause a downward movement in the price from here on," Howie Lee, analyst at Phillip Futures, told the Australian Financial Review.

Lee predicts that gold prices may continue to drop towards $1,180 as the market prepares for the interest rate rise – which may not come until the autumn.

"Given falling oil prices and slowing growth globally they cannot afford to raise rates too early, so I think the first rate hike will happen in September," he said.

Gold price up as historic change ends London fix

20 March

Gold prices were up this week as the twice daily London gold "fix" came to a close, to be replaced by a new electronic system.

UK investors saw the final London gold fix, which was quoted in pounds sterling from its formal launch in 1919 until it was replaced by the US dollar in April 1968, end at a one-month high of £789 ($1173.64) yesterday. 

In morning trading today, the price dipped before settling at the $1,170 level. The volatility of the US dollar is reponsible for much of today's movement in the price of gold, Bullion Desk reports.

The London gold fix was the near century-old method for determining the price of gold. It began as a daily meeting between the bank NM Rothschild, five bullion dealers and an agent of the Bank of England, the Financial Times reports. 

It later became a secure conference call held twice a day. On Thursday HSBC, Societe Generale, Barclays and Scotiabank participated in the final fix.

The new electronic fix, which began today, will include the four members of the old process, as well as UBS and Goldman Sachs. 

The fix will remain in London, but will offer greater transparency, including a full audit history, "something regulators will find useful", the Financial Times notes. The system changed in response to accusations that it was unclear and potentially vulnerable to abuse.

New concerns about the Greek economy have helped gold prices remain strong going into the weekend. "The uncertainty over whether Greece will remain in the eurozone remains," Commerzbank said, "which should make gold attractive as a safe haven."

Other metals were also up today – silver was last up 57 cents at $16.73 per ounce, platinum gained $6 to $1,130 and palladium climbed $8 to $772.

 

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