Year 2016: Analysts continue to remain bearish on gold
International prices fell 11% in 2015, closed at $1,094.4 per ounce on PMEX
International prices fell 11% in 2015, closed at $1,094.4 per ounce on PMEX. CREATIVE COMMONS
KARACHI:
Brace yourself for another year of uncertainty if you are one of those investors who remain hopelessly in love with gold: the price of the precious metal is nowhere near a rebound in 2016.
Keeping pace with the downward slide that began in September 2011, gold prices remained low throughout last year. In fact, international gold prices fell by as much as 11% in 2015. It closed at $1,094.4 per ounce on the Pakistan Mercantile Exchange (PMEX) on Tuesday.
Although Pakistan’s share in the global consumer demand of gold is miniscule, the price of the precious metal is still determined largely by global supply and demand dynamics. With world consumer demand at 714.9 tonnes, Pakistan’s share was only 1.3% in the second quarter of 2015 - the latest quarter for which worldwide data is available.
A declining gold demand in Pakistan
Pakistan’s capital markets currently boast of three gold funds, namely Atlas Gold Fund, UBL Gold Fund and Meezan Gold Fund. Unlike traditional buying and selling of gold biscuits in saraf bazaar, these mutual funds offer investors a standardised platform for regulated gold investing that is in sync with the international gold market.
In line with global trends, Atlas Gold Fund posted a loss of 4.4% while the return of UBL gold Fund clocked up at -6.9% in 2015. Launched last August, Meezan Gold Fund had posted a loss of 5.2% by the end of 2015.
Analysts expect the bearish trend to persist in the gold market in 2016 as well. Speaking to The Express Tribune, Atlas Gold Fund Manager Muhammad Umar Khan said the past trend shows major commodities tend to rally in tandem.
“With sluggish economic growth globally on the back of China slowing down, commodities’ prices are expected to remain muted going ahead. This is likely to keep the price of gold under pressure in the short term at least,” Khan said.
All that glitters is invariably gold
He added that unanticipated events like an escalation in violence in the Middle East or an upheaval in a major oil-producing country may bring gold back to the fore as a safe haven for investment.
“Gold is going to get stronger in the medium to long term, as global economic output gathers pace, resulting in higher commodity prices,” he added.
Theoretically, the price of gold is inversely proportional to that of the dollar, as it tends to decline if the US currency gains strength.
Improved economic conditions in the United States led its central bank, the Federal Reserve, to increase its benchmark interest rate - referred to as the funds rate - last December. Investors were expecting that decision for many months, which had effectively resulted in higher bond yields, stronger dollar and weaker gold.
Alternative view
According to the World Gold Council (WGC), a market development organisation for the gold industry, there are “encouraging signs” for the gold market in the current year.
“As of Jul-Sep 2015, both Indian and Chinese (gold) demand was up relative to the same period last year. Bar and coin demand was also up, including (in) the United States,” it said in its latest report.
The WGC said the Asian gold market will continue to expand, with China piling up its gold reserves and India establishing a new gold exchange. Moreover, stock valuations in the United States remain “quite elevated,” it said.
Published in The Express Tribune, January 13th, 2016.
Brace yourself for another year of uncertainty if you are one of those investors who remain hopelessly in love with gold: the price of the precious metal is nowhere near a rebound in 2016.
Keeping pace with the downward slide that began in September 2011, gold prices remained low throughout last year. In fact, international gold prices fell by as much as 11% in 2015. It closed at $1,094.4 per ounce on the Pakistan Mercantile Exchange (PMEX) on Tuesday.
Although Pakistan’s share in the global consumer demand of gold is miniscule, the price of the precious metal is still determined largely by global supply and demand dynamics. With world consumer demand at 714.9 tonnes, Pakistan’s share was only 1.3% in the second quarter of 2015 - the latest quarter for which worldwide data is available.
A declining gold demand in Pakistan
Pakistan’s capital markets currently boast of three gold funds, namely Atlas Gold Fund, UBL Gold Fund and Meezan Gold Fund. Unlike traditional buying and selling of gold biscuits in saraf bazaar, these mutual funds offer investors a standardised platform for regulated gold investing that is in sync with the international gold market.
In line with global trends, Atlas Gold Fund posted a loss of 4.4% while the return of UBL gold Fund clocked up at -6.9% in 2015. Launched last August, Meezan Gold Fund had posted a loss of 5.2% by the end of 2015.
Analysts expect the bearish trend to persist in the gold market in 2016 as well. Speaking to The Express Tribune, Atlas Gold Fund Manager Muhammad Umar Khan said the past trend shows major commodities tend to rally in tandem.
“With sluggish economic growth globally on the back of China slowing down, commodities’ prices are expected to remain muted going ahead. This is likely to keep the price of gold under pressure in the short term at least,” Khan said.
All that glitters is invariably gold
He added that unanticipated events like an escalation in violence in the Middle East or an upheaval in a major oil-producing country may bring gold back to the fore as a safe haven for investment.
“Gold is going to get stronger in the medium to long term, as global economic output gathers pace, resulting in higher commodity prices,” he added.
Theoretically, the price of gold is inversely proportional to that of the dollar, as it tends to decline if the US currency gains strength.
Improved economic conditions in the United States led its central bank, the Federal Reserve, to increase its benchmark interest rate - referred to as the funds rate - last December. Investors were expecting that decision for many months, which had effectively resulted in higher bond yields, stronger dollar and weaker gold.
Alternative view
According to the World Gold Council (WGC), a market development organisation for the gold industry, there are “encouraging signs” for the gold market in the current year.
“As of Jul-Sep 2015, both Indian and Chinese (gold) demand was up relative to the same period last year. Bar and coin demand was also up, including (in) the United States,” it said in its latest report.
The WGC said the Asian gold market will continue to expand, with China piling up its gold reserves and India establishing a new gold exchange. Moreover, stock valuations in the United States remain “quite elevated,” it said.
“In such an environment, bonds offer less protection to soften the blow of a stock market correction … gold’s role as a portfolio diversifier and tail risk hedge is particularly relevant,” WGC said.
Published in The Express Tribune, January 13th, 2016.