The price of gold climbed after the terrorist attack in Brussels but retreated over the prospects of a U.S. rate hike. That was the result of a comment from Patrick Harker, the Philadelphia Fed president, who said the strong labour market in the U.S. would filter through to inflation and that rate-setters should consider renewed policy tightening as soon as next month.
Anthony Fensom, a Morningstar contributor, reported on Morningstar Australia:
On 17 March, gold rose 2.1% to reach $1,258 an ounce in New York trading, following news the Fed would likely slow the pace of its planned rate hikes. Lower interest rates benefit the gold price, since the metal becomes more competitive against interest-bearing assets, and with the prospect of slow economic growth in 2016, it could hold its value even longer.
"Gold has been the biggest story of this year," Dan Denbow, a portfolio manager at the USAA Precious Metals and Minerals Fund, told Bloomberg News. "Last summer, people were calling it a barbaric relic and nobody could care less about gold. Now, it's slowly generating more and more buying."
The increased investor interest is shown by the rise in gold held by exchange-traded funds, or ETFs, to 1,678 metric tonnes, up 15% as of the end of February, with gold already described as this year's best-performing asset.
Morningstar resources analyst Mathew Hodge suggests gold's shift from a "financial" to a "consumer" commodity should bode well for its future, even if investment demand slows.
"We're forecasting a 4.7% compound annual growth rate (CAGR) for total physical gold demand over the next five years, led by Chinese and Indian jewellery buyers. We expect jewellery to account for two-thirds of gold demand by 2020, up from 50% in the past five years, with the share of purchasing by central banks and ETFs dwindling below 5%," he says.
"While gold supply growth is expected to accelerate, planned projects will be insufficient to meet the demand growth, with an additional 200 tonnes of annual mine supply required by the end of the decade."
According to Hodge, investor gold demand has dropped by 800 tonnes since its 2011 peak, but gold jewellery demand should rise by 1,200 tonnes through 2020, led by the Asian emerging giants, particularly as household buying power increases in China and India.
Meanwhile, central banks have been buying around 400 to 500 tonnes of gold annually in recent years, but this amount is expected to drop to just 100 tonnes annually by the end of the decade.
Morningstar expects the gold price to reach $1,300 per ounce on a nominal basis by 2020, helped by rising jewellery demand. For 2016, Morgan Stanley is predicting the price will reach $1,173, while Societe Generale expects $1,150 and ABN AMRO tips $1,300.
