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.
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