Gold has been edging up in recent months, but the outlook for the precious metal over the long-term is still dull. Gold analysts foresee prices of the yellow metal falling to $1,000 in 12 months as the Federal Reserve normalizes monetary policy.
Gold has rallied almost 8 percent since mid-July reacting primarily to reduced probability that the Fed would raise interest rates in 2015. Lower U.S. long-term real rates and increased volatility in global equity markets have also helped prices of bullion remain high and investor appetite for the metal in the U.S. has been rising as well. Gold is currently trading at $1,165 an ounce.
When it comes to gold exports, things are moving slowly but surely. For example, Swiss gold exports to China and Hong Kong combined last month were at their highest in more than a year and a half. A marked increase in Chinese gold purchases during the third quarter of 2015 has also helped to support gold prices.
Gold has been edging up in recent months, but the outlook for the precious metal over the long-term is still dull.
An interest rate hike by the Fed would most certainly change the direction of gold prices and it just might happen. According to some economists, the Fed is expected to implement a 25 basis point rate hike at the December Federal Open Market Committee (FOMC) meeting followed by 100 basis points of rate increases during 2016.
Where’s the Gold?
Where is most of the world’s gold stored? It comes as no surprise that governments, central banks, and investment funds are the world's largest holders of gold reserves.
Most people would say the majority of the world’s gold is stored either in Fort Knox, Texas or in a vault somewhere in Manhattan. And they are correct. According to one survey, using data from an International Monetary Fund's International Financial Statistics Report, many countries in Europe and Asia are strong holders of gold reserves. The list starts with the Netherlands and includes Japan, France, Japan and Germany, China and Russia.
In fact, the latest figures out of Russia are impressive and somewhat intimidating. The country continues to amass gold at a steady pace. In September alone, it purchased 34.2 tonnes bringing its total to around 1,353 tonnes – or 13% of its total foreign exchange reserve figure.
This is the seventh successive month that Russia has increased its gold reserve and it is the second highest monthly total purchase in six years. The increase is another indication of the country’s continuing desire to downplay the significance of the U.S. dollar holdings in its overall currency reserve structure.
Russia’s gold figures leave the country as the world’s sixth largest national holder of gold, moving further ahead of Switzerland in seventh place which is sitting on 1,040 tonnes and closing the official gap with China which also reported increasing its gold reserve in September by 15 tonnes to 1,708 tonnes (representing under 2% of its Forex reserves of around $3.5 trillion.)
In fact, The People’s Bank of China (PBOC) reported its latest gold holdings, showed a nearly 1 percent increase in the month of September. Gold reserves rose by 14.9 tonnes to a total of 1,708.5 tonnes. China has over $3.5 trillion in foreign exchange reserves with gold making up only 1.7 percent of China’s total reserves. Foreign currency – particularly U.S. dollars and euro – dominate its holdings.
Gold mavens recommend that anyone with gold or gold investments keep their holdings in tack –for insurance sake if for nothing else. Even if gold prices continue to fall, the world may just turn back to gold as a common form of money again, or at the very least, some major central banks will start using gold to back their currencies. Gold may start to glitter once again.