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Gold price stays strong as the Fed leaves US rates unchanged

Thursday, January 28, 2016

Gold has continued to enjoy strong prices this week as the value of the US dollar slipped ahead of the US Federal Reserve’s announcement yesterday (Wednesday) that it would not increase the cost of borrowing this month.

Market analysts now believe the Fed is less likely to increase rates over the next few months than in December, when it raised them by 0.25 per cent – the first increase in almost a decade. Since December, however, global markets have been rocked by news of the slowing Chinese economy and falling oil and equities prices.

The volatility has seen investors return to the safe haven of gold, with the spot price increasing by six per cent so far this month, compared to the 10.4 per cent drop it suffered during 2015.

At 08:15 on Tuesday (26 January), the value of gold was £786.86 per troy ounce and although it slipped slightly to £783.63 by 17:00 on Wednesday, prices remain strong. Gold was valued at £784.78 per troy ounce at 09:15 this morning (Thursday).

China, which is the world’s biggest gold buyer, is continuing to build up its stocks of the precious metal, with data published earlier this week showing that the country imported its highest levels of gold for two years in December 2015.

Helen Lau, analyst at Argonaut Securities, told Reuters she expects the country to continue snapping up bullion in the run-up to February’s Chinese New Year holiday.

She added: “China has taken advantage of low gold prices and an equity market rout to stock up on gold assets.”

High demand for gold and silver coins

The strong demand for gold currently being seen on the global markets is being reflected in gold bullion and silver coin sales.

The US Mint has been forced to ration supply of its 2016 American Silver Eagle coins to one million a week because of silver planchet shortages.

It has also sold more of the 2016 Mark Twain commemorative gold $5 Half Eagle coin than it anticipated, with some orders having to wait to be fulfilled. It can legally only produce 100,000 of the limited edition coins and 350,000 Mark Twain silver dollars this year.

Gold bullion and silver coins are popular forms of investment in precious metals because as well as holding their value as gold and silver, they also benefit from the collectable nature of limited edition runs. This often adds to their value over the longer term.

India’s gold monetisation scheme proves popular

The Indian government has announced that 900kgs of gold has been collected as part of its monetisation scheme which was launched on 5 November last year.

The programme is designed to persuade people to part with gold stocks they have at home and help reduce the country’s gold import bill. Gold is India’s second biggest import cost after oil.

The monetisation scheme gives banks permission to collect gold from customers and pay out 2.5 per cent interest on the value of their precious metal.

There is an estimated 20,000 tonnes of gold held in Indian homes and temples that the government is keen to bring back into circulation, so it can reduce the country’s reliance on imports of the precious metal.