Gold Falls to Six-Year Low

23 Dec 2015 | Author: | No comments yet »

Gold Falls to Six-Year Low.

Gold prices closed at a fresh six-year low Thursday, as traders grew concerned that the Federal Reserve’s first rate increase in almost a decade will cut demand for the precious metal.Gold prices are lower in Asia trade, trading down nearly 0.6% at $1066.76 an ounce, as the dollar strengthened after the Federal Reserve set the new target range for the federal funds rate at 0.25% to 0.5%.

entered the first trading session of the new era at 1067.80 falling $9.00 in the Asian session and it is expected to continue to decline as the day progresses. Unlike other forms of investments, the price of gold does not rely on certain aspects that are guaranteed to change at some point in time like company management or competition. In a press conference after a two-day meeting, Fed Chair Janet Yellen said “The committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will continue to expand at a moderate pace and labor market indicators will continue to strengthen.” She also emphasized that “gradual does not mean mechanical, evenly timed, equally sized, interest-rate changes. On the contrary, when economies are doing well, and particularly the US economy, gold does seem to struggle a bit due to its links with the US dollar.

I strongly doubt that it will mean equally spaced hikes.” The Federal Reserve’s 25-basis-point increase definitely put some pressure on the market but anyway I will be paying attention to technical levels as always. The central bank also gave a relatively upbeat outlook on the world’s largest economy, although officials said they planned to raise rates at a gradual pace over the next three years. With the current price pegged at about $1,058, there could be a significant upside by early next year as the effects of the US Federal Reserve interest rate hike wear out while at the same time uncertainty grows over the potential impact on US economy.

The comments spelled more bad news for gold, a metal that some investors use as a hedge against higher consumer prices. “The commodities perhaps most likely to struggle in the wake of Fed tightening would be gold and, by association, silver,” analysts at Capital Economics said in a note to clients. So there was some relief that, after months of waiting and several false starts, the move was finally done and dusted. “The Fed will be absolutely delighted with the lack of volatility across all asset classes,” said Alan Ruskin, global head of forex at Deutsche. On the other hand, Crude Oil had been on a major decline dating back to mid-2012 and the consequential strengthening of the USD did not help the situation. The U.S. central bank’s policy-setting committee raised the range of its benchmark rate by a quarter percentage point to between 0.25 and 0.50 percent, ending a lengthy debate about whether the economy was strong enough to withstand higher borrowing costs.

Nonetheless, investors should borrow a leaf from the behavior of the three investment vehicles back in the year 2007 just before the start of the global financial crises. At the moment, it is hard to rule out a similar occurrence especially given the fact that a majority of the world’s leading economies are still struggling. When you look at China, Japan, the UK, Russia and the rest of the members of the Eurozone, it is easy to say that in terms of economic recovery, the world as a whole is not off the hook yet.

U.S. government data showed investors had increased their bearish bets on gold to record levels this month, although they have since edged back from that peak. The last few years have demonstrated some stability thanks to a series of quantitative easing programs initiated by the EU, the US and leading Asian economies. Whether they are going to buy gold bullion or simply trade long the yellow metal via various derivative platforms, signs are that gold will yet again demonstrate its ability to rebound from adverse situation thereby maintaining its brand as the best store of value. Early this year, Switzerland’s National Bank SNB unpegged the maximum appreciation possible against the Euro in a move that saw bullish EUR/CHF investors lose money momentarily. Prior to that (in November last year), the Swiss nationals had just voted against a referendum that would have seen the Swiss Central bank acquire more gold.

Note that National central banks hold gold reserves as a guarantee to redeem promises to pay depositors and note holders (such as paper money), or to secure a currency. Copyright © 2015 Nicholas Kitonyi – All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis.

Individuals should consult with their personal financial advisors. (c) 2005-2015 (Market Oracle Ltd) – Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time.

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