To say that gold has had a hard time of late might be one of the year’s biggest understatements. Demand and value have fallen to such an extent that gold plummeted to a five year low during July 2015. So are the heady prices achieved in 2011 no more than a distant memory, or should we live in hope of gold’s return to its former glory?
Nikolas Xenofontos, Director of Risk Management of leading online trading services provider easy-forex, believes that gold has the potential to make a comeback in 2016. He explains:
“The price of gold is impacted by so many factors that it’s far from easy to assess where it might be headed, but there are certainly some positive indications that could mean a resurgence in both demand and value over the next year, particularly during the latter part of the year.”
In fact, gold prices are so tough to call at the moment that even hedge fund managers are “posting a track record no better than a coin flip when it comes to betting on the metal,” according to Bloomberg.
Throughout the 1980s and 1990s, gold prices remained relatively stable, fluctuating between US$300 and US$500 per ounce. A dip in the early 2000s then made way for a staggering rise in value. As the rest of the world focused on the housing market crash and whole nations’ economies became unsustainable, gold prices seemed on an endless upward trajectory, thanks to the precious metal’s reputation as a safe haven during difficult times.
Of course, what goes up must come down and since peaking at more than US$1,900 per ounce in August 2011, gold’s value has reduced considerably. In early November 2015, it dropped below US$1,100 per ounce.
“The prospect of a US rate increase is keeping gold prices down right now,” continues easy-forex’s Nikolas Xenofontos, “but we’ve also seen other factors impacting on gold’s value. The driest monsoon season in six years, for example, has led to plummeting demand in India compared with previous years.”
Gold sales in India usually boom during Diwali, but with rural farmers accounting for around 60% of consumption, the lack of rain and its impact on the country’s crops has led to a steep downturn in demand compared with years when agriculture has boomed. According to the Times of India, the state of Gujarat, for example, saw gold imports fall by 87% in October 2015, compared with a year earlier.
The result of these and a myriad of other factors is that now doesn’t look like the most attractive time to buy gold – or, indeed, to sell it. So could that change over the course of 2016?
It’s certainly a possibility. While the US economy is broadly back on track, global financial uncertainties continue and the impact of the death of the BRICs (Brazil, Russia, India and China, and belatedly South Africa) is yet to be fully felt. Just as the housing crisis in the US triggered a global financial crisis, if the BRICs come crashing down in tandem over the remainder of the 2010s, the shockwaves will reverberate around the world. And where economic uncertainty builds, so too does the price of gold.
“2016 is going to be a key year for gold prices,” concludes easy-forex’s Nikolas Xenofontos. “I wouldn’t rule out prices dropping to US$1,000 per ounce, but I also believe there’s a real chance that gold might rally during the second half of the year as a result of a range of global factors.
“American gold futures speculators have dominated during 2015, but investors could change the story considerably in the coming year. Gold is certainly one commodity to keep a very close eye on over the weeks and months ahead.”
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