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Gold Extended Gains on Global Concerns


Jan. 11 2016, Updated 8:07 a.m. ET

Gold rose

Gold prices edged up marginally on Tuesday, January 5, 2016. Gold futures for February expiry were trading 0.3% higher than the previous day’s close. Gold prices added $3.2 and closed at $1,078.4 per ounce. The trading range, however, remained narrow from $1,071.9 to $1,081.5. All the precious metals were up on Tuesday except palladium, which fell almost 1.6%, giving it a five-day trailing loss of 4.7%. Platinum and palladium gained 0.94% and 0.62%, closing at $13.9 and $890, respectively.

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Fundamentals driving gold

The recent unrest in the world markets, especially China’s steep stock market fall, pushed gold higher on Monday and continued extending the gains on Tuesday. The Chinese central banks resorted to pumping in almost $20 billion in short-term funds in the markets to calm the uprise. Added pressure from the Middle East also supported the rise in gold. However, the haven demand for gold may likely be short-lived, as few other factors could have such an impact on gold in the longer term.

2015 rate hike conundrum

The major price determinants for gold in 2015 were the Federal Reserve’s decision on the interest rate rise, which made gold lose its haven appeal even during turbulent times like steep stock market declines, the Grexit, and a civil war in Ukraine. Expert analyst predictions still hover around a bearish 2016 sentiment in gold due to rising interest rates.

The forthcoming rate hikes will most likely cause a fall in the bullion-based ETFs like the SPDR Gold Shares (GLD) and the iShares Gold Trust (IAU). Gold mining companies like Agnico-Eagle Mines (AEM), Yamana Gold (AUY), and Primero Mining (PPP) may also be adversely affected by the rise in gold prices.


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