Tuesday, 21 July 2015
Why has the yellow metal lost sheen?
Plagued by fears over a maiden US interest rate lift-off since 2006, coupled with a rampant greenback and ebbing fears over Europe’s debt troubles, investors have shunned the precious metal, pushing it to a five-year low.
Fears of an interest rate hike by the US Federal Reserve in the near-term have prompted investors to turn to the US Dollar, which has an inverse relationship with the yellow metal. A stronger dollar reduces the metal's appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies, biting Gold.
Recent US inflation and jobs data have bolstered speculation that the world’s top central bank may pull down the curtains on its zero interest rate policy, putting the yellow metal out of favour, which will find it difficult to compete with high yielding assets when rates will be hiked. Moreover, a lift-off in US interest rates will curb the lure for Gold as a store of value, piling on the pain for the bullion which tends to flourish in easy money policies from central banks.
With a Grexit safely averted and fears over China’s stock market rout waning, investors have returned to risky assets such as equities, hurting Gold, considered a safe haven for investors in times of acute economic instability, ensuring that the precious metal remains firmly in Bear grip.
Posted by Latin Manharlal at 04:27