Gold touted to be best performer in 2016

07/02/2016 08:10 AST

Gold, generally considered as a non-productive asset, is once again gaining traction among fund managers.

After three years of losses, the yellow metal has gained more than 8 per cent so far in the year, becoming the best performing asset class globally, due to safe haven buying triggered by a series of bad news from China and tumbling oil prices. On Thursday, spot gold hit $1,155.30 an ounce on Thursday, its highest since October 29, and analysts feel the best is yet to come.

“We expect that 2016 is the year for gold and it could be the best-performing commodity. We have way too many elements in the markets that are keeping the volatility inflated and gold represents a perfect hedge in relation to this. We deem that the gold price could easily close near the $1,350 mark by the end of this year and the global volatility will keep the investor appetite elevated,” Naeem Aslam, chief market analyst with AVA Trade told Gulf News.

Ole Hansen, head of commodity strategy also agreed with that view. “Gold to finish the year above $1200. I did expect some headwind and lower prices during the first quarter but with oil, stocks and bond yields sliding support for gold has emerged earlier than expected,” Hansen said.

However, there was a word of caution for investors. “If the Fed does take a U turn on their policy, that could take some wind out but than again this move itself will spur more bullish sentiment for gold as loose monetary policy will be negative for the dollar,” Aslam said.

Gold typically rises when the dollar slides and falls when the dollar rises. The link is with interest rates, which when they rise also push up the opportunity cost of holding the metal, which earns no yield and costs money to store and insure.

China buying:
Part of rally would also be supported by buying from China, the world’s biggest buyer of the metal.

“China will continue to increase golds share of its reserves. Just getting to 5 per cent would equate to roughly 1.5 full year of global production,” said Hansen.

Gulfnews