Gold was down in 2015 in US dollars but not in all currencies
The gold price fell by more than 11% in 2015 in dollar terms as the US currency strengthened across the board. However, more than 90% of physical demand coming from outside the US. For all these non-dollar investors, it is the local price – and not the US dollar price – that matters most. During 2015, the non-US dollar price of gold has held up even moving up in some currencies.
The current financial environment points to a different 2016
In our view, there are important conditions that are likely to make 2016 different from 2015:
- Interest rates are not a dominant driver of the gold price once the effect of the dollar is taken into account and we believe that the effect of the dollar on the gold price is overdone
- The gold market in emerging economies continues to expand, highlighting the crescent importance that this market will have on price discovery
- Amid expensive stock valuations and high global market risks, gold’s role as a portfolio diversifier and tail risk hedge is particularly relevant.