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Gold makes gradual gains after falling to five-month low

Monday, November 14, 2016

Gold began to recover some ground this morning (Monday November 14) after closing last week at its lowest price in five months.

The precious metal fell to a low point of £966.86 per troy ounce at 05:15 this morning but had begun to claw back gains to be valued at £978.04 per troy ounce by 08:45.

Bullion’s lacklustre performance last week is because of the strengthening dollar and widespread forecasts that the US Federal Reserve will increase the cost of borrowing at its December meeting. 

Jeffrey Halley,senior market analyst at OANDA, told Reuters: “The rate hike in December is an absolute done deal now.”

Gold had been widely expected to make gains after the shocks sent through the global markets by the election of Donald Trump as US President. Investors were expected to flock to buy bullion due to its traditional strength as a safe haven investment in turbulent times. 

Indeed, it rose to £1,005.63 per troy ounce in the early hours of Wednesday morning as it became apparent Trump was going to win.

However, Halley said: “What we're seeing today is the continuation of long liquidation going through the market.

“People seem to have unwound their Trump-risk and are now talking more about ‘Trumpflation', with Trump's fiscal policies that he wants to enact with all this infrastructure that would push up inflation and that would push up borrowing rates and yields in the States.”

Analysts are now expecting Mr Trump’s election to lead to the cost of borrowing rising faster than had been anticipated. The Fed’s chair, Stanley Fischer told the markets on Friday that growth prospects are now strong enough to handle a gradual rise in the cost of borrowing. 

Generally, when interest rates rise, it signals a steady economy and the gold price falls as investors opt to put their money in more risky ventures instead of the safe haven that the precious metal provides.