Is it the Right Time to Buy Gold?

May 31st 2016

Gold fell by 5.3% (-£47/ oz t) in May, triggered by the Fed's announcement that it intends to raise US interest rates in June.

After 3 consecutive weeks of decline brought gold to a three-month low last week, some speculators are arguing that this may be the end of the 2016 bull-run.

However, lessons should be learnt from the recent past and some speculators are expecting that this dip could present a long-term buying opportunity. Gold’s excellent run in the first half of 2016 began in December when, for the first time in nearly 10 years, the Fed raised interest rates.

The preceding weeks had a similar impact on the gold price, pushing it down as confidence in the dollar grew and the prospects of higher yields drew investors away from precious metals. However, since the mid-December rate hike the gold price has increased by around 18% (+£125/ oz t), with the Fed having so far failed to deliver on their plans to raise rates again in 2016. Whether or not they raise rates in June remains to be seen, but questions are being asked of the Fed's ability to do so after a non-committal stance in recent months.

Negative interest rates throughout Europe don't look like going any time soon and with the Bank of England offering their lowest rates ever, it seems only likely that this plague could spread even further. In a world where saving money in the bank becomes an expense, non-yielding assets, like gold, become a lot more attractive.

As recently as April, high ranking BoE policymaker admitted to contemplating negative rates. If, as it seems, rates are set to fall even further, the gold price, driven by safe-haven demand, could continue to rise throughout the year.