Gold is hitting the 6 years low

The last 4 and half years gold is going down and so far it has depreciated for over 800 USD per ounce since 2011. What are the main reasons for such a dramatic decline and where will this commodity go in the upcoming year? Let’s find out below.

Why gold has been going down?

There is not one reason in the devaluation of gold, but rather a few major reasons that together contribute towards such a fast and sharp decline in the value. Let’s examine every each of them.

Lower demand

As we know, gold is a commodity that is usually considered as a safe place by the investors. Yet, while it is safe, it is also not likely to deliver large returns, at least in the eyes of the investors. Last few years have been extremely low globally in terms of the interest rates, but this is about to be changed. As the cost of borrowing the funds will increase, the investors would see more reasons in using their funds beyond gold.

 

Next to this, one of the largest countries that generated demand for gold was China. As we know, its economy is has not only stopped growing, but actually started shrinking. This certainly triggers quite a substantial cut in the demand for gold.

Stronger USD

As a commodity, gold is exchanged globally for USD and an increase in the price of a dollar results in the lower price of the gold. While the volatility of gold value against other currencies is certainly lower, a stronger USD means that the price of gold is going to decline too.

Predictions for gold in 2016

We can certainly highlight that the main contributing factors towards the decline in the value of gold are going to persist in the upcoming year. Having said this, it is clear the gold is actually going to decline further.

 

It is important to note that breaking a level of $1000 will be extremely important, both financially and psychologically. Firstly, while the price of gold has been rocketing, the mining costs have increased and so did the acquisition prices of the deposits, salaries and so on. To say even more, in many developed countries it may not be feasible anymore to mine gold when it is sold below $1000 per ounce.

 

It is also vital to understand that if getting gold out of the mines becomes less profitable, the whole sector will be cut and this will result in a reduced supply of the commodity. As a result, this can positively contribute towards gold’s value, however we would expect this to rather slow down the drop in the value than cause it to go up.

 

This article is a guest blog contributed by Nick, from Forex Library