3 reasons to sell gold in 2015
Gold price keeps on falling for a second consecutive month. On Wednesday the “yellow metal” touched a new 4-month low below the $1150 mark.Let’s examine the reasons behind the current drop and make forecasts.
The first major reason for gold depreciation is the growing chance of the Fed’s policy tightening in mid-2015. Strong labor market data, released last Friday, have become a new stimulus for the USD buyers. The US dollar will remain supported during the whole rate hiking cycle – it will take at least a couple of quarters to normalize rates from the current extra-low levels.
The second factor containing gold demand is weak global economic growth. The US economy has more or less stabilized, but China, the largest industrial gold consumer, is raising serious concerns. The official 2015 GDP growth target has recently been lowered from 7.5% to 7%. Demand remained weak even during the Chinese New Year celebration.
Third negative fundamental factor – deflationary threat spread all over the global economy. The largest metal consumers – China and USA – are also at risk. Demand for gold as a store of value traditionally falls down in times of low global inflation.
Note that the US dollar index has already reached multi-month highs above 100. According to the “market logic”, such strong moves are usually followed by remarkable corrections. USD bearish retracement will clearly result in gold recovery, but we expect the $1200 area to cap the move. The price will likely reach the $1100 mark by the middle of the year.
Chart. XAU/USD Monthly