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OCBC: Gold Is Effective And Safe, For Now
Aspire, Investments | 10 July 2015
By: Vance Wong
Articles (74) Profile

In a climate where the market prices are elevated and there are worldwide Grexit concerns, many cautious investors look for a safe haven, gold. As seen in the graph above, gold has been fairly stable despite the US Dollar Index (DXY).

OCBC points out that gold is not always the best for investors. Especially when the US Federal Reserve expressed their considerations of a rate hike, coming most probably later this year. However, OCBC still thinks that in the current climate of fears, gold as a safe haven is worth looking at.

Interest Rates Key To Gold Prices

While a strong Dollar did not have a strong influence on gold prices, OCBC is positive that interest rates will be the key deciding factor. In a way, if interest rates are raised, it is a signal that the Fed is confident in the economic growth and strength to withstand.

When the economy starts to recover and grow healthier, gold as a safe haven would not be as attractive anymore, thus pushing its price lower. Furthermore, OCBC found that gold demand has been diminishing, in both Electronic Traded Funds (ETFs) and physical demand.

Although the general concern about interest rates have played a huge role in positioning gold as a safe haven asset, the oil plunge earlier in 1H2015 and the recent Grexit concerns were contributing factors too.

Noting this, oil prices are beginning to recover over the past month and Grexit concerns would not have a substantial impact on the Fed’s decision to raise rates. Therefore, OCBC thinks that interest rates and a stronger Dollar as a whole, would be the main deciding factor to gold prices through the remaining of 2015.

Gold Still Viable

Nevertheless, the fact that gold as a safe haven asset cannot be dismissed because of its stability despite fluctuations of the Dollar’s strength. Furthermore, the recent economic events might be problems that could jeopardise the painfully hard earned global economic recovery.

In an event that the economic outlook continues to be uncertain and weak, gold will retain its position as a valuable safe haven asset. Undoubtedly, interest rates would eventually be raised, but OCBC thinks that gold will be well-supported, at least in the short term.

OCBC projects the first rate hike to happen around September this year to a year-end fund rate of 0.75 percent. Projection of gold prices is about $1,050/oz but OCBC is hoping that recent economic risks serve as a short-term support.

With a Communications background, Vance has the passion to write with a purpose - to provide content supported with substantial evidence to vested readers.

Please click here for more information about this author.


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