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Gold Analysis: Why is the price of gold rising?
As I write this article, the price of gold sits at £764.775, $1173.70 and €1028.524 respectively. The price of gold is at a three month, near four month high.
So what is it that is making the price of gold rise?
Firstly it has everything to do with the dollar and most importantly with the Federal Open Market Committee (FOMC). In truth I cannot remember a time I didn’t write an article mentioning the impending rates rise, only then to slam the FOMC for false hawkishness. Well this time it is no different. The FOMC minutes that came out last week are predominantly responsible for the yellow metal’s current boost. The minutes as before have continued to not ruffle feathers and the retreat from a September rates rise has not done much to instil investor confidence. The FOMC are still holding on to a potential December rates rise, but the reality is we are already half way through October and data is still not positive enough to warrant a rise. The Federal Bank no doubt will make noise to the contrary but myself along with most of the sane economic world, will see the crass imagination and over-exuberance in such a sentiment. The reality as specified in the minutes, is that this isn’t just about the US. It is about the global economy. More specifically China.
China if you hadn’t already realised is really the powerhouse, the engine room and pretty much everything else nowadays – unless of course you wish to believe exactly what US press will tell you. As the FOMC highlighted above, the global slowdown or more appropriately China’s slowdown has been alarming and has shaken the recovery process. I wrote a few months ago when the news broke about China’s slowdown that this won’t truly be felt until later on in the year. Well that time is now upon us. Chinese data despite optimistic forecasts is still falling short. Chinese Producer Price Index fell 5.9%, in line with expectations. This is the 43rd consecutive month. On the other side, Chinese Consumer Price Index rose 1.6% but was still short of 1.8% expectation. The massive economy that is China has experienced such increases since the huge growth in 2007 that it is now much harder for a larger economy to produce the 14% we were used to.
Lastly, War is another big reason for the price of gold to rise. Needless to say the increased pressure on Syria over the last couple of months has helped commodity prices to rise. Whenever there are times of uncertainty, commodities always tend to act as a safe haven. Likewise it is unsurprising that in the last quarter oil prices have remained fairly stable and in the case of Brent Oil, increased. The cost of extraction and then transport of metals will increase and should have a knock on affect going forward.
Verdict:- Why is the price of gold rising? Reality is, the world economy is not where the Federal Reserve or China want it to be. The wishful thinking for December rates rise is simply that, wishful thinking. With strong Chinese data elusive and US data still not making par an interest rates rise shouldn’t even be on the radar until well into 2016. I haven’t got onto the UK and -0.1% inflation rate figure – hardly encouraging for one of the EU’s strongest members and I scarcely need to mention it but the war on Syria has escalated. Uh-oh the Russians are coming..
Article by Michael Cooper