Gold stages a comeback to erase its 2015 losses, as signs point to US delaying rate hikes
Gold has just erased its 2015 losses. It jumped to the highest in more than three months last Thursday, as evidence that economies are slackening from China to Europe damped expectations that the Federal Reserve will soon raise interest rates. Signs of stagnating US inflation and retail sales added to the case to keep rates low, which revives the appeal of gold as a store of value.
Last week, bullion for immediate delivery rose to the highest level since late June, to just overturn losses since the end of 2014. Last week alone, prices rose 2pc.
"The view is definitely shifting toward a later lift-off and that is generally supportive of gold prices," said Vyanne Lai, an economist at NAB.
Gold bulls are returning, after ignoring the metal for much of the year. Holdings in exchange-traded products backed by bullion are headed for the fourth gain in five weeks and options are signalling that traders expect the rally has more to go.
Analysts surveyed by Bloomberg are still split on whether the metal will cap 2015 with a gain, after prices tumbled 29pc in the previous two years amid resilient US growth and a stronger dollar. Odds for a lift-off this year are at 30pc, Fed funds futures data show.
"The gold trade right now is really about the Fed," said Bob Haberkorn, a senior strategist at RJO Futures in Chicago. "With the numbers deteriorating, it's getting less likely there will be a Fed rate increase this year. The fundamentals, along with the technicals, are all pointing to a bullish close for gold at the end of the year."
There is still plenty of room for debate as to which way the Fed will go. The Bank of New York president William C Dudley said last week that the central bank should still raise rates this year so long as the economy stayed on track, echoing Fed boss Janet Yellen, who last month said she expected a rate rise would be warranted in 2015.
Gold fell for five quarters through September 30 - the longest streak since 1997 - as the US recovery gained momentum and the job market improved, fuelling expectations that the Fed would stick with its guidance for higher rates.
Prices have climbed since mid-September, when the Fed announced a decision to keep rates unchanged, citing international risks that threaten to dent domestic growth and depress inflation.
Twenty-one of 41 analysts surveyed by Bloomberg see prices ending 2015 with a loss, while the rest expect a rebound. Higher borrowing costs make gold less competitive than interest-bearing assets such as bonds, and tighter monetary policy usually strengthens the dollar and cuts the appeal of metals as an alternative.