Gold price tipped to fall further after hitting four-year low
AN American economic recovery could sink gold below $US1000 a fine ounce by the end of 2015, analysts warn.
The precious metal hit a four-and-a-half year low of $US1165 overnight.
FALL: Gold extends four-year low
Its value is expected to fall deeper as speculators turn to the greenback.
“We’re in the phases of a multi-year cyclical bull run for the US dollar,” IG chief market strategist Chris Weston said.
“If the US dollar’s going to strengthen, I personally believe the gold price is going to suffer as a consequence.”
The US Federal Reserve is now forecasting an upswing in the world’s biggest economy, with stimulus measures discontinued.
A lift in US interest rates during the second quarter of 2015 would weigh on the gold price for the rest of the year.
“In the third quarter, fourth quarter, it will come down to test that $US1,000 mark,” Mr Weston said.
Gold hasn’t traded below $US1000 since September 2009, when concerns about Greek debt saw investors buy it as a hedge against inflation.
Within two years, it climbed to a record $US1900.
David Lennox, a resources analyst with markets research group Fat Prophets, said gold mines that opened during the GFC would close if the price dropped below $US1100.
“A lot of mines would have to shut — there would be no doubt at that price level,” he said, adding diversified miners would end gold production to focus on their main commodity.
“That would significantly reduce primary production.”
This would reduce the supply of gold and push up prices again as jewellers, rather than speculators, bought the precious metal. “You’d start to see again that increase in the appetite for gold from its real sources,” Mr Lennox said.
“We haven’t, at this stage, seen a lot of mine closures but there’s certainly been production curtailment.”
For that reason, he is “comfortably” forecasting a gold price of $US1200 by the end of 2015, even as a rise in US interest rates puts some short-term dents in its value.
Gold has previously hit record highs before sliding.
It did so in early 1980, only weeks after the Iranian hostage crisis and the Soviet invasion of Afghanistan.
The precious metal steadily rose again following the September 2001 terrorist attacks in the US, and kept on climbing until the worst of the GFC was over.
HISTORIC FALLS IN GOLD
* $US835 per fine ounce in January 1980 to $US485 in April 1980, down 42pc
* $US1772 per fine ounce in September 2012 to $US1234 in June 2013, down 30pc
(Source: Bloomberg and Iress)