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Analysts eye market after gold rallies despite strong US economic data

Monday, December 7, 2015

Investors will be watching the gold price closely today after a surprise rally at the end of last week.

The price rose from an almost six-year low on Thursday (December 3), with the spot price increasing by 1.1 per cent per troy ounce. The precious metal was up in line with the value of the euro, which rose by one per cent after the European Central Bank confirmed a minimum cut in its deposit rate.

On Friday (December 4), the gold price rallied further to reach a three-week high, adding over 2.5 per cent to its value to stand at £718.41 per troy ounce by close of play. This was the first weekly gain recorded by the precious metal for seven weeks.

The rally surprised analysts because it came after official figures from the US Labor Department showed better-than-expected job creation figures.

However, there was a slight decline in the value of the US dollar to end the week. The increase in the value of the euro prompted a 1.73 per cent fall in the value of the US currency, which had been enjoying eight-month highs.

The value of gold often rises when the US dollar falls, because it means that bullion becomes cheaper to buy with other currencies. Bill O’Neill of New Jersey-based commodities investors Logic Advisors, told Reuters  : "I would attribute most of the [gold] rally to the weakness in the US dollar.”

Gold held most of its gains this morning (Monday, 7th December), recording £718.17 per troy ounce at midday, leading analysts to continue with their cautious optimism.

Gold investors are now waiting to see whether the US Federal Reserve will act to increase interest rates for the first time in 10 years at its December meeting on the 15th and 16. The strong US jobs data adds to expectations of a rise in rates and investors have been leaving gold bullion funds in preparation, the Economic Times reported. It pointed to a fall in assets held by the main gold exchange traded fund, the SPDR Gold Trust, which have dipped to their lowest since 2008.

This of course would signify an attractive time to buy gold for individuals seeking more bullion for their money.