World Economy

Gold Shrugs Off Rising Equities

Gold Shrugs Off Rising EquitiesGold Shrugs Off Rising Equities

Gold edged up above $1,200 an ounce on Friday as buyers helped the metal hold up against rising equity markets, paring losses fueled by worries over a looming hike in US interest rates.

A surge in gold prices to above $1,230 an ounce last week from around $1,140 a week earlier has spurred caution among investors, said Yuichi Ikemizu, branch manager at Standard Bank in Tokyo, Reuters reported.

“People are not overly bearish anymore. They have learned their lesson when gold rallied sharply so they’re not bold enough to go short around these levels,” he said.

Spot gold was up 0.2 percent at $1,200.50 an ounce by 0711 GMT, after hitting a session high of $1,201.50. The gain helped cut bullion’s weekly loss to 1.8 percent from more than 2 percent earlier in the day.

That fall was largely on account of Monday’s 2.5-percent drop - its deepest this year - amid worries over rising US interest rates in 2015.

The Fed, after wrapping up a two-day meeting on Wednesday, signaled it was on track to increase rates next year but said it was taking a patient stance, allowing gold to erase some of its losses.

Fed’s no-rush stance to withdraw stimulus from the US economy sent Asian shares to their best day in 15 months on Friday, taking their cue from a rally on Wall Street.

US gold for delivery in February gained 0.5 percent to $1,200.40 an ounce.

 Gold in 2015

Resurgence in gold demand from China and India, the world’s biggest consumers, is set to restore some shine to the yellow metal in 2015 after a lackluster year, CNBC reported.

“Physical gold demand in China and India were held back in 2014 amid high stocks and import controls, respectively,” said Victor Thianpiriya, commodity strategist at ANZ. “Both these shackles have been removed, putting demand on a solid footing as we head into 2015.”

In China, physical gold demand will return because stocks are depleting, said Thianpiriya, who sees the precious metal ending 2015 at $1,280 an ounce, up from $1,200 currently.

Traders are no longer required to export 20 percent of all gold imported into the country (India) – a measure that was introduced last year to lower inbound shipments and reduce the country’s current account deficit.

“This has significantly changed the landscape for the market in India, opening up all import channels once more,” said Thianpiriya.

There is, however, a possibility of other restrictions being placed on the market over time, he said, such as import quotas.

While a rising US dollar has tarnished gold’s appeal this year, Thianpiriya believes physical demand will help offset headwinds from a stronger greenback next year.

A stronger dollar can be negative for gold demand as it makes the metal more expensive for holders of foreign currencies.

David Lennox, resource analyst at Fat Prophets says while dollar strength may be headwind for gold in the first-half, the currency is likely to ease in the second-half following the Federal Reserve’s first rate hike. This should provide some support for gold later in the year, he said.