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Analysts keep a sharp eye on international economy after dip

Thursday, January 14, 2016

Gold has recently been enjoying nine-week highs in value but has been unable to sustain its climbs this week as the US dollar strengthened once again.

Analysts are waiting for further direction on possible interest rate rises in the US, and say that while the market expects the cost of borrowing to increase, the attraction of gold as a safe haven has less of a pull.

Matthew Turner from Macquarie told Reuters: "The pause in the gold rally underlines the difficulty gold has in rallying when there is expectation of Fed rate hikes, even if other news is supportive.

"People still think the dollar and rates are going up and therefore the medium-term case is bearish."

However, there remains uncertainty in the Chinese market, which was one of the reasons the gold price rallied last week.

Mr Turner added: "It doesn't mean it's all over; the market is pretty short and a lot of the uncertainty about the global economy has not been resolved."

On Wednesday (13 January), the precious metal started the day at £748.16 per troy ounce at 09:00 and had increased in value to £754.80 by 17:30. This morning (Thursday 14 January), gold was valued at £758.02 per troy ounce at 09:00.

Uncertainty in the economy

The gold price traditionally increases during periods of economic and political uncertainty; it is the famous ‘safe haven’ that investors turn to in difficult times to keep their cash secure. Although they may not earn a high rate of return, there is the confidence that their investment will not plunge in value in the same way that more risky stock market investments can.

Currently, there are concerns about the UK’s economic growth, provoked by worse than expected output figures released by the Office for National Statistics (ONS).  Figures published on Tuesday showed that rather than rising as forecast, manufacturing output during November was actually down by 0.4 per cent and the broader industrial sector’s output fell by 0.7 per cent.

The uncertainty generated by this data makes gold look an attractive investment proposition and analysts will be watching the market closely for further evidence that the UK economy may be slowing.

Gold recycling – a trend to watch in 2016

There have been efforts for some time in India – the world’s second-biggest buyer of gold after China – to reduce the reliance on gold imports and release the amount of the precious metal being held by people throughout the country.

The latest move to stop people hoarding gold is to encourage them to recycle it. Muthoot Exim, the precious metals division of Indian business giant Muthoot Pappachan, is working to increase the country’s five gold recycling centres to 16 by the end of 2017.

The company has just opened its first new gold recycling centre of 2016, where people can bring broken or scrap jewellery and other gold items. The precious metal is then melted down and refined before being turned into gold bullion bars to be sold to domestic investors.

India has already monetised gold and there are proposals to open the country’s first physical gold trading exchange.