Gold is an asset that has historically outperformed in times of both inflation and deflation. But the SPDR Gold Shares exchange traded fund (ETF) has fallen by close to 20pc in the last 12 months and has been trading at five-year low levels.
Gold has been falling in large part to the soaring U.S. dollar and the bearish influence of falling commodities prices. Also the expectations for higher interest rates in the US are affecting global bullion price. There are four main factors that affect the price of gold.
– The USD
– Global interest rates
– Supply and demand fundamentals
– Risk Sentiment
So far in 2015, all four have simultaneously pushed gold prices lower.
The prospect of higher rates—and bigger returns than those found elsewhere—has attracted money to U.S. stocks and bonds, boosting the dollar’s value against major currencies such as the Euro and the Yen. Exacerbating the Greenback’s climb are central banks in Japan and Europe, which continue to pursue easy-money policies. A stronger dollar makes gold relatively more expensive for buyers outside the U.S.
Gold supply is also likely to plateau in the next couple of years, according to the World Gold Council, an industry body. As gold price moves below $1,200oz, this represents a real opportunity for gold investors and would signify a good buying opportunity for the long term.
Long-term investors know not to get caught up in the daily market fluctuations. You set a plan and stick to it, with a little rebalancing along the way. But always keep a watch on how asset classes perform over different time horizons and invest during a down cycle. Gold Prices definitely do offer a real opportunity with prices where they are today. Talk to Dino Zavagno or a member of his team to evaluate if this is an opportune time to add the sheen of yellow metal to your portfolio.
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