Gold price begins to rebound

Photo: Investing in Gold

Gold is beginning to show signs of a rebound in price and sentiment, as the US continues to hold back rate increases.

The precious metal has had a nightmarish year, with demand and value falling. The asset has always enjoyed a status as a safe haven during turbulent times, but even with economic concerns in China and Greece, the metal has struggled to gain momentum, thanks to the improving US economy. As the dollar has strengthened, demand for gold has weakened, hit by expectations of a pending rate hike: given that metals do not offer interest or yields for investors, higher interest rates directly sap the appeal of the safe haven assets. As a result, gold plunged to a five-year low in July 2015.

Now, though, wider economic certainty has begun to play in gold's favour once more, as the Federal Reserve continues to prove reluctant in raising rates once more. Now, with rates unchanged in the most recent September meeting, many think that a hike will not occur until next year. As a result, gold has started to rally, with prices up 8 per cent.

Prices could continue to climb a further 8 per cent, George Zivic, portfolio manager at OppenheimerFunds Inc, tells Bloomberg.

Silver has also enjoyed something of a rebound, thanks to limited supply: the US and Canadian Mint have struggled to meet demand, with the Perth Mint rationing supply this month. That limited output has fuelled the attractiveness of the metal, pushing up demand and values.

"Silver [coin] demand is absolutely through the roof," Neil Vance, wholesale manager at the Perth Mint, told Reuters at the start of October. "There seems to be a bit of frenzy as people think there is a shortage of silver. But in fact it is a (crunch in) manufacturing capacity."

Nonetheless, there's still a long way for gold to go before it enters booming territory: in Lloyds Bank's most recent investment survey, gold was one of only two asset classes to see a fall in sentiment month-on-month, with sentiment down 21.31 percentage points in the year to October 2015.