Wednesday, 31 August 2016


‘Why isn’t gold at $2,000 an ounce?’  
Gold is one of the best-performing asset classes this year, up nearly 24 per cent. But a small step back reveals it’s down by almost a third from its record intraday high of $1,921.15 an ounce in September 2011. So the real question is: why is gold so weak? 
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The first reason is that – obviously – the price of gold started its recent rally from a low base, of around $1,050 last December, while holdings in exchange traded funds – at just over 1,600 tonnes at the start of this year – are down from the January 2013 high of 2,818t.  

There could be multiple reasons why prices and volumes haven’t risen enough, but Macquarie says a key one is that the “macroeconomic backdrop is less supportive, and this boils down to the fact the US economy and economic outlook is not in the same dire straits that it was in 2011.” One key feature since September 2011 has been the stronger US dollar. Gold may have given up nearly a third of its value since then, but plenty of currencies have also posted double-digit declines against the greenback. 

One other reason is because physical demand is not as it once was. Notably, a slump in jewellery during the first quarter of this year, probably held the gold price back, and physical demand was again lacklustre in the June quarter. Even central banks aren’t buying with the same enthusiasm these days. 

From the perspective of its macroeconomic forecasts, we expects the dollar to appreciate in the short term as the market focuses on the Federal Reserve tightening interest rates, and weaken thereafter. Crucially, they expect neither move to be large.

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