The yellow metal remains the best way to profit from growing concerns about the efficacy and long-term effects of central banks’ extraordinarily accommodative monetary policies.
Rising interest rates tend to weigh on gold prices because investors prefer to store their cash in dollar-, yen- or euro-denominated assets that offer at least a modest yield. Accordingly, the current era of ultra-low interest rates should provide a tailwind for gold prices.
If the Federal Reserve opts to increase interest rates at a gradual pace (or fails to hike rates in 2016), gold prices could enjoy a banner year. Inflationary pressures would also be a boon for gold prices.
Investor demand for gold continues to increase, with many opting for the convenience of SPDR Gold Shares and other popular exchange-traded funds (ETF).
The total weight of gold held by ETFs offering exposure to the yellow metal tumbled from a peak of 84.64 million troy ounces in December 2012 to a low of 46.9 million troy ounces in early 2016. And over the past few months, these funds’ gold holdings have soared by more than 20 percent to about 56 million troy ounces.
Gold demand also appears to be on the rise in China and India, two of the world’s largest consumers of the yellow metal.