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Gold price steadies as the dollar dips and Chinese economy slows

Wednesday, January 20, 2016

A weakening of the US dollar and further evidence of the slowing Chinese economy helped the gold price to steady on the markets this week.

International investors returned to the market yesterday (Tuesday) after the annual Martin Luther King Day holiday in the US. The gold price per troy ounce jumped from £760.55 at 08:00 on Monday (18 January) to £767.62 at 18:00 on Tuesday. At 09:00 this morning (Wednesday), it had increased further to £775.06.

Figures from China showed that its economy grew at its slowest rate in six years during the last quarter of 2015.  

Danske Bank senior analyst Jens Pedersen told Reuters: "As long as there is confusion about how China manages exchange rate policy, how they will intervene in the stock market and so on, there will be some safe-haven demand for gold.

"However, even though we have seen a re-pricing of the Fed's rate hike this year (the market doesn't expect a full rate hike before December), we haven't seen much dollar weakness and that's because the market is expecting monetary easing from other central banks."

The US currency did weaken on Tuesday, falling by around 0.1 per cent in value compared to other currencies. This makes gold a cheaper option to buy for investors in other countries. Typically, gold prices strengthen when the value of the dollar weakens.

Although the slowing of the Chinese economy has sent some investors scurrying for gold as a safe haven for their money, analysts are also waiting to see whether the Chinese authorities will make any moves to stimulate their economy.

Plus, the weakening of Chinese consumers’ spending power may also affect the gold price given that China is the world’s biggest buyer of the precious metal. Furthermore, demand from India, the second biggest gold purchaser, is also limited because this point in the year is traditionally believed to be inauspicious to buy bullion.