Gold price swings
Gold prices had a strong start to 2015, driven by strong demand from Asia. The Greek crisis and the Swiss currency cap removal also led to uncertainty, which benefited gold. From April onward, however, it started pulling back as global uncertainty receded and major economies faced weak inflation. Finally, the temporary resolution of the Greek crisis removed a major overhang.
The positive data coming out of the US strengthened the case for a Fed rate hike sooner rather than later, which weighed on gold fundamentals. Now, circumstances seem to be changing again, at least in the short term.
Gold rallied after the Fed’s decision not to hike interest rates in its September meeting. After recording a 2% gain—its highest one-day rise in eight months—on September 24 on the back of the weaker US dollar, gold gave up most of these gains after the Fed chair’s hawkish comments. We’ll discuss this in detail later in the series.
Gold stocks’ performance
Gold stocks are also in for a roller coaster ride, along with gold. In September, Barrick Gold (ABX) has lost 2.8% of its value until September 24, while Newmont Mining (NEM), Agnico Eagle Mines (AEM), and AngloGold Ashanti (AU) have gained 0.3%, 6.8%, and 10.1%, respectively.
In the same timeframe, the SPDR Gold Trust ETF (GLD), which tracks the price of spot gold, increased by 1.2% while the VanEck Vectors Gold Miners ETF (GDX) rose 4%. Barrick Gold forms 6% of GDX’s holdings.
Gold prices are impacted by a number of variables. In this series, we’ll look at the following factors that investors can track to get a sense of the direction of gold prices. The factors include:
- US inflation
- US dollar
- Asian gold demand
- central bank gold holdings
- gold ETF holdings
We’ll also look at the impact of US data on the US dollar and gold prices. Then, we’ll discuss various factors of the US labor market. These are the most important considerations that the Fed reviews before deciding on the amount and timing of rate hikes. We’ll also look at how the physical gold in the Asian market is expected to progress going forward.