Gold Gets Back Lustre In Volatile Times: Will It Last?

Gold prices have been trending up lately, making it the best performing commodity this year after three years of losses. Prices of the yellow metal jumped above the psychologically important level of $1,200 an ounce as investors flocked to the safe haven asset.

Last year, a stronger greenback, slump in oil prices and the climb in U.S. equities led to a more than 11% decline in gold’s value. With the Federal Reserve finally ending an era of near-zero interest rates with the December lift-off, gold slouched to six-year lows. The reversal of fortune for the yellow metal this year reflects the all-around uncertainty characterized by volatile stock markets, slowdown in China and a relatively weakening dollar.

 Broken China
 
China’s stock market has been shaken by the slowdown in the country’s economy and Beijing’s failed efforts to stabilize its financial markets. China’s GDP moderated to 6.8% for the fourth quarter, its lowest reading since the financial crisis. The 6.9% growth for 2015 was a marked deceleration from the 7.3% gain last year and its weakest in 25 years.

The Caixin Manufacturing PMI in China came in at 48.4 in Jan 2016, almost flat with December’s reading of 48.2. The index has been in a contraction since Mar 2015. Production fell for the second successive month in January.
 
The International Monetary Fund (IMF) projects growth in China to moderate to 6.3% in 2016 and 6% in 2017, reflecting weaker investment growth as the economy continues to rebalance. Given the gloom in China, the international organization also trimmed its 2016 world growth outlook to 3.4% from its earlier estimate of 3.6%. Global stocks are edging lower amid lingering concerns about China’s economy and a fresh bout of volatility in oil prices.
 
U.S. Also Disappoints
 
The U.S. economy entered 2016 with little momentum from some of its key drivers, with consumers cutting back on spending and factories being weighed down by tepid global demand. This helped to prop up gold prices.
 
U.S. gross domestic product expanded at a meager 0.7% in the fourth quarter of 2015. Weaker consumer spending, falling exports and a smaller build-up in business inventories led to the fourth-quarter slowdown. The economy expanded at 2.4% in 2015, the same rate as in 2014. The U.S. hasn’t seen 3% growth since 2005.