U.S. Rate Hike Effect "Overdone" When Talking Gold - WGC Reports

The effect that U.S. rates have had on the gold price is “overdone” and may take a back seat this year, said the World Gold Council today in its 2016 outlook. At first glance, 2015 was not good for gold, the council acknowledged. Gold’s dollar price was down by more than 11% by the end of 2015, investor sentiment was bearish: average net-longs reached their lowest level since 2003 and gold-backed exchange-traded funds saw outflows of 100 tonnes. In an interview with Kitco News, Juan Carlos Artigas, research director for the WGC, explained that in the months leading up to the U.S. Federal Reserve’s first rate hike in 9.5 years, higher bond yields strengthened the dollar, putting pressure on gold. ‘We believe that 2015 was an exception and not the rule. While the U.S. dollar is certainly a significant driver for gold, there are two additional important points to consider: (1) it is not the only driver, and (2) it is not always the most relevant metric for most investors,’ Artigas said. He explained that interest rates are not a dominant driver of the gold price once the effect of the dollar is taken into account. ‘And the dollar has already strengthened more in the past two years than it has since the ‘dot-com bubble’ burst. In fact, the dollar is at the highest level it's been at the beginning of a Fed tightening cycle since the 1980s.’ Kitco News, January 08, 2016. (show less)

The effect that U.S. rates have had on the gold price is “overdone” and may take a back seat this year, said the World Gold Council today in its 2016 outlook. At first glance, 2015 was not good for gold, the council acknowledged. Gold’s dollar price was down by more than 11% by the end of 2015, investor sentiment was bearish: average net-longs reached their lowest level since 2003 and gold-backed exchange-traded funds saw outflows of 100 tonnes. In an interview with ... (read more)

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