Gold has had a strong start to the year after investors dropped equities and turned to perceived safe havens on the back of a multitude of concerns, but there is no clear consensus on what the rest of 2015 looks like for the metal.
Global equities, as represented by the MSCI AC World index, managed to eke out a slight gain of 0.14 percent in the first two weeks of 2015, aided by the 0.17 percent rise in US stocks. The FTSE All Share, on the other hand, lost 2.39 percent over the same period, TrustNet reported.
Meanwhile, S&P GSCI Gold Spot index climbed 6.93 per cent as the yellow metal’s price went past the $1,250 dollar an ounce mark. While still some way short of the record $1,921 reached in September 2011, the rise suggests to some that the precious metal could recover somewhat in the coming years.
Hans Olsen, global head of investment strategy at Barclays Wealth and Investment Management, said: “To describe the start of the year as inauspicious is a bit of sublime understatement. The mood of investors globally was dour and their actions could be best characterized as risk-averse.”
“Furthermore, the picture of equity markets in the Americas, Europe, and Asia was that of a sea of near-perfect red. In a quasi-symmetry of action, the shunning of equities was offset by the embracing of treasuries, gold and silver. ‘Risk off’ was the prevailing strategy of the opening days of 2015.”
Olsen adds that the “usual, recycled reasons” seemed to be the catalyst for the negative sentiment: the existential threat to the eurozone that could emerge if Syriza are victorious in the Greek election; the plunging oil price; and the risk that the globe could be facing deflation, like recently sprang up in Europe.
“Any one of the above threats could cause a market swoon; combine the lot, and the investor mood, along with the returns on risk assets, set teeth on edge,” the strategist concluded.
Negative Backdrop
Given the negative backdrop to the markets at the moment, could investors expect to see further improvements in the gold price?
Julian Jessop, head of commodities research at Capital Economics, says the resilience of gold in light of the appreciating dollar and the plummeting oil price – which would be expected to act as headwinds for the precious metal – suggests further recovery could be expected in 2015 and the following year.
“This resilience may seem surprising given the generalised strength of the US currency and the decline in inflation expectations due to the slump in oil prices,” he said.
“However, these potential negatives for the precious metal have been more than offset by renewed demand for safe havens due to the instability in equity markets, worries about growth, and fears about deflation in the eurozone in particular.”
Jessop adds that the macroeconomic forecasting consultancy is wary of “getting carried away” with its gold outlook, noting that its recent advance is small when put next to the significant falls that occurred over the past few years.
He concedes that gold could simply drop back again once investors’ risk appetite starts to rebound or could find its upside limited by the expectation of the Federal Reserve lifting interest rates in the US at some point in the year.
“Nonetheless, the partial recovery has once again demonstrated gold’s enduring appeal as a safe haven, as well as the decent support that appears to materialize around the $1,200 mark,” he explained.
