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With gold dipping in 2015, what should investors be looking for?

Thursday, December 31, 2015

The gold price has dipped again in sparse trade as the markets neared their close for 2015.

In what has been a quiet week for the precious metal, the gold spot price per troy ounce fell to £715.37 at 17:00 yesterday (Wednesday 30 December) from its weekly high of £721.07 just over 24 hours earlier. This morning (Thursday 31 December), the gold spot price was £716.53 at 09:00.

What has affected the gold price in 2015?

The gold price has dropped by around 10 per cent over the last 12 months, making 2015 the third consecutive year that it has fallen.

While this is a positive for longer-term investors buying in, it has meant that 2015 was not the best year to sell.

The falling spot price has been linked to the strength of the US dollar this year. When the US currency is strong, the gold price tends to be weaker, and vice-versa. In addition, the improving economy in the US, which led to the Federal Reserve increasing the cost of borrowing for the first time in almost a decade, has resulted in some investors shying away from the stability offered by the precious metal.  

This week, the gold price has been linked to the performance of currencies and the price of oil, because there has been little economic news for investors to analyse.

Afshin Nabavi, head of trading at MKS SA, told Reuters: “Physical demand in gold continues to be relatively aggressive in the Far East compared with October and November, and on that basis gold should be much higher, but there seems to be this pressure from the dollar, which continues to put a lid on the price.”

Looking ahead to 2016, Adrien Biondi of Commerzbank said many of the same issues will continue to impact on the price of the precious metal.

“Gold's drivers will remain the same going forward, including the Fed's policy and the rate differential with other central banks, the strength of the dollar and China’s economic growth,” he said.

The performance of oil is also traditionally linked to that of gold because gold is considered a good hedge against inflation led by high oil prices. This year has seen a slump in the oil price, which fell close to 11-year lows yesterday after Saudi Arabia revealed it would not be reducing production to stoke up demand.

Demand for gold bullion coins remains high

The weaker gold spot price in 2015 has led to increased demand for bullion coins and analysts expect this trend to continue into the New Year.

The better prices for investors resulted in strong sales of coins in the US, where the US Mint had sold all its 2015 dated one troy ounce American Eagle gold bullion coins before the end of November.

Although demand slowed in December, analysts say this was due to a lack of supply rather than a reduction in investors’ desire to buy coins.

Barclays said: “The slow sales pace in December was supply driven, in our view. We expect strong demand at the start of next month once new supply comes from the US Mint, due to lower prices.”