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Gold heads for third annual loss with tough year ahead

, December 31, 2015

Gold edged higher on Thursday as the dollar rally paused but the metal was set to post a third straight annual loss ahead of what is likely to be another tough year with the prospect of higher US rates and dollar strength.

Largely influenced by US monetary policy and dollar flows, the price of gold has fallen about 10 per cent in 2015 as some investors sold the precious metal to buy assets that pay a yield, such as equities.

Spot gold inched up 0.2 per cent to $1,062.15 an ounce by 1034 GMT during the last trading session of the year. Volumes were thin ahead of the New Year holiday on Friday.

Prices were set to end 2015 close to a near-six-year low of $1,045.85 hit earlier in December.

"The key factor for gold remains the strong dollar and that ultimately trumps all other issues including the economy and the geopolitics," said Ross Norman, chief executive of bullion broker Sharps Pixley.

The dollar was on track to gain 9 per cent this year against a basket of major currencies, making dollar-denominated gold more expensive for foreign currency holders.

Other precious metals have also been hit by dollar strength and the gold slump, and were headed for sharp annual declines.

Silver, up 0.2 per cent at $13.89 an ounce on Thursday, looked set to end the year down about 11 per cent.

Industrial metals platinum and palladium were harder hit, heading for yearly losses of 27 per cent and 31 per cent respectively, partly due to oversupply from mines and concerns about demand growth.

Following the US Federal Reserve's first interest rate rise in nearly a decade this month, and indications the central bank would resort to gradual increases in 2016, the gold outlook does not look bullish.

"2016 will start very much more of the same, which is to say, ongoing Western paper selling, ongoing Eastern physical buying," Sharps Pixley's Norman said.

Other fundamentals were not supportive of a rise in prices either. Assets of SPDR Gold Trust, the top gold-backed exchange-traded fund, were near a seven-year low while short positions on COMEX gold contracts were close to a record high.

A bearish outlook for oil could also pile pressure on gold. Gold is often seen as a hedge against oil-led inflation.

"As the Fed's path to normalisation in its monetary policy becomes clearer as we venture into 2016, we may see some stabilisation in gold and silver with an eventual move higher into H2 2016," said Alex Thorndike, senior precious metals dealer at MKS Group.

"In the shorter term, however, things could deteriorate further," he said. – Reuters




Tags: Gold | Dollar | oil price |

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