Nov 6 (Reuters) – With gold falling to a seven-week low it may seem an odd moment to outline the case why the gloom over the yellow metal may finally be starting to lift.
Spot gold dropped to $1,103.90 an ounce on Thursday, the weakest since Sept. 16, and is getting close to the 5 1/2-year low of $1,077 reached in July this year.
The usual suspects of looming higher U.S. interest rates and a stronger U.S. dollar are being blamed for the latest bout of weakness, but while gold may struggle in the short term, its medium-term outlook is somewhat more promising.
Gold is now heading for a third year of declines and is 40 percent below the record high of $1,920 an ounce, reached on Sept. 6, 2011. While this looks ominous, it’s worth noting that gold has stabilised in a range around $1,070 to $1,300 for much of the past two years.
While a period of relatively low volatility doesn’t by itself indicate a rally (or a collapse) is imminent, it does show that the strong selling period of 2013 is history.
What will drive the gold price over the medium-term? Short-term factors and news events can always shift gold (and other asset classes), but over time the price tends to be driven by the big picture.
Gold was pushed to the record high in 2011 by an unusual combination of events that many analysts mistakenly believed would persist for a considerable period of time.
This was a Western fear of monetary meltdown in the wake of the 2008 global recession, strong physical demand from India and China on the back of a rising middle class, and unprecedented buying from central banks, particularly those in the developing world.
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