Are the good times over for gold?
This could be the year that marks the first decline in the gold price in 13 years.
Gold has fallen back from its three-month high of around $1,400 an ounce, with hopes that military action in Syria could be averted causing the latest price drop. But other factors influencing gold also point to a subdued performance over the next few months, reckons Fxpro.com's Simon Smith.
For starters, real interest rates have been rising globally over the past six months. Investors will be more reluctant to hold gold, which pays no interest, if they can get a real return on other assets. Higher interest rates are also a sign of a gradual return to economic normality, which is not good news for an asset that thrives in bad times.
There is another headwind for gold: dwindling inflation. Inflation in the OECD area as a whole is at a four-and-a-half-year low.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Meanwhile, solid emerging-market demand for gold 50% of consumer demand stems from China and India looks set to be undermined by the slide in the Indian rupee, making gold more expensive to consumers.
All told, says Smith, gold could see its first down year in 13 years. But we'd still hold on to the yellow metal. We'd be surprised if we've really heard the last of inflation, and given the scope for instability as interest rates normalise or the euro crisis returns, holding some gold as portfolio insurance could well prove a canny move.
-
UK inflation slowed again in March – but a rate cut could be some months away
The latest Consumer Price Index (CPI) data came in at 3.2% for March. This was slightly higher than some economists expected, but takes us closer to the Bank of England’s 2% inflation target.
By Katie Williams Published
-
Pension vs property: which option provides the best income for your retirement?
News With the cost of a comfortable retirement on the rise, future retirees need to weigh up which strategy offers the best returns. But is a pension a better bet than property?
By Henry Sandercock Published