Gold has defied market expectations, rising above US$1300 for the first time in more than a year.
The metal spot price leapt to US$1303.60 per ounce yesterday, its highest level since January last year, before sliding back to US$1295.40 per troy ounce.
This has been the largest single weekly rise since mid-February.
The movement also marks a 22 per cent increase in price for the metal to date, as the US dollar weakens and equity markets remain unimpressive.
Much of this is due to investors flocking to gold and gold backed funds as the market continues to face uncertainty and the oil price stagnates, with the metal representing a safe haven for investors.
“Investor sentiment remains broadly risk-off, which is positive for gold,” Jonathan Butler, a precious metals strategist at Mitsubishi Corporation in London, said.
“Looks like there is nowhere to put money at the moment that is safe or gives a decent yield,” David Govett, head of precious metals at Marex Spectron Group in London, added.
“The only market that is performing well is gold and that is attracting the spare money sloshing around the system.”
Capital Economics analyst Simona Gambarini explained that “precious metals are up quite strongly on the back of weakness in the dollar, after poor GDP data in the United States and a lack of action by the Bank of Japan (with the yen hitting an 18 month high against the US dollar)”.
However, she cautioned that “there could be a correction in the price if the dollar starts strengthening again, but we remain positive on gold”.
Earlier this year pundits forecast a weakened gold price for 2016, predicting further US Federal Reserve rate hikes – which are yet to materialise – to drive the metal downwards.
Bernard Dahdah, from French investment bank Natixis ( and the winner of last year’s London Bullion Market Association’s gold price forecast competition), predicted the metal to average around US$970 per ounce this year, with a low of US$900.
Dahdah forecast that “the biggest influence on the price of gold this year will be the expected path of interest rate hikes”.
“Natixis expects further rate hikes by the Fed this year, which should increase the opportunity cost of holding the metal,” he said in the London Metals Bulletin Market Association’s recent precious metals forecast.
“Outflows from physically backed ETFs are expected to continue as higher-yielding investments and a stronger dollar becomes more attractive to investors.
“The upside risk comes from possible delays in rate hike cycle due to a weak US performance or more severe economic issues in China.”
BNP Paribas’ Martin Squires also predicted a weak gold price, with an even more bearish US$960 per ounce average forecast, and a US$900 low for the metal.
“BNP Paribas believes that gold’s downward trend will remain in place throughout 2016, pressured by the slower global growth, strengthening US dollar and the associated expectation of three further US rate hikes this year,” Squires said.
“We are forecasting gold to average US$960 per ounce in 2016,” he said.
It remains to be seen whether the metal we re-align with these early forecasts.