Gold - A reliable store of value in uncertain times

THESE last few weeks have been a roller coaster ride for gold. It looked like its recent bullish trend might have come to a premature end as markets prepared themselves for a summer interest rate hike. Strong economic data, coupled with hawkish language by the Fed, painted a picture that a decisive 0.25 per cent rise would be announced in the Federal Open Market Committee's (FOMC) statement in either June or July. Expectations fuelled strength in the US dollar and battered gold lower from a fresh high of US$1,303. All that remained was confirmation from the monthly non-farm payrolls (NFP) report, a barometer of the US labour market's health.

Sceptics, however, kept gold prices above their key support level of US$1,200. The decision would soon see them benefit handsomely. May NFP numbers were the first in a string of market shocks to come. The labour market added a mere 38,000 jobs compared to a forecasted 160,000. The disappointing figures rattled markets, and chances of a summer hike are now slim. On the other hand, the poor news sparked a reversal in gold with prices rallying more than US$30.

June's FOMC statement dampened rate hike expectations further with the central bank revising interest rate projections lower not just for 2016, but 2017 and 2018 as well. The low interest rate outlook appeared to signal a green light for gold bulls, and with the historic EU referendum just around the corner, prices would retest the US$1,300 level.