Gold loses its sheen as US rate hike looms

Photo: BullionVault

Gold is losing its sheen as an investment as the prospect of a rate hike looms in the USA.

Precious metals as a safe haven and as an attractive asset have traditionally boomed in contract to the US economy. With the country’s finances appearing increasingly healthy, pushing the dollar higher and higher against other major currencies, a growing number of experts are expecting the Federal Reserve to raise interest rates for the first time in years.

Some believe a rate hike could arrive as soon as September 2015, a possibility that saw gold values fall for the second time in three days this week – a decline that followed a severe plunge to a five-year low in July. Indeed, a higher rate would impact the attractiveness of bullion as a profitable asset, because it does not pay out interest or returns.

“Gold is becoming more and more distasteful as an asset for people to own,” Phil Streible, a senior market strategist at RJO Futures in Chicago, told Bloomberg . “Better U.S. growth is going to reaffirm an interest-rate hike in September, and that’s what is damaging gold.”

The news agency also reports that Barrick Gold Corp, the biggest producer of gold in the world, has seen its stocks fall this summer, plummeting 35 per cent in July in its sharpest four-week decline since Bloomberg records began in 1986.

Now, brokers report that wealthy investors are already turning to other options for their alternative investmets.

“HNIs have reduced allocating funds to gold as an investment option as they are wary of the direction and volatility of gold prices,” Sandeep Nayak, executive director and CEO of Centrum Broking,” told the Economic Times . “Instead, they are shifting the same funds to high-yielding bonds (AA— or AA+) and some promising mid cap funds/stocks.”

“In fact, we reduced the weight of gold from 3 per cent of the portfolio to nil in May 2014,” he added.