Mine to Market- April 2016
Could Gold hit AUD $2000 per ounce in 2016
$2000 per troy ounce for Gold! The number sounds incredible – but we very well could see it happen this year, in Australian dollars that is.
At present, the AUD gold price is trading above $1650 per troy ounce, which is a major lift from where the metal was trading at the start of the year. At the end of 2015 gold was trading closer to $1450 per troy ounce in Australian dollar terms, but the metal has since risen noticeably since then, driven mostly by
- Enhanced fears of a ‘hard landing’ in China
- A slowdown in global growth projections
- Enhanced financial market volatillty
All of these factors have led to a fall in the US Dollar, and we’ve also seen the United States Federal Reserve change their tone when it comes to how fast they are going to hike interest rates this year.
At the start of 2016, the market was expecting four interest rate hikes by the Federal Reserve, but the bank itself has now said that at most two interest rate hikes is more likely, testament to the slower growth rates and market volatility discussed above.
This change of tone from the Federal Reserve has been well reflected in currency markets, with the Australian dollar in particular a major beneficiary, though in fairness the strong bounce in iron ore prices has helped the local currency bounce too.
Indeed as it stands today, the Australian dollar is currently trading at 0.7589 vs. the US Dollar, up 4% since the start of the year, when the local currency was only fetching USD $0.7304
How will the RBA respond?
It is this currency strength, which we believe will prove temporary, that is the main reason we think gold could test AUD $2000 per troy ounce this year. We fully expect the Reserve Bank of Australia to enter the ‘currency war’, in the coming months, looking to push down the value of the Australian Dollar.
One, two and in a worst case even three interest rate cuts could be on the cars between now and the end of 2016, all of which would help to push the AUD lower vs. the USD.
If the USD gold price was to continue climbing, which many think it will, then this will make a $2000 price tag in Australian dollars even easier to achieve. A USD gold price of $1400 per troy ounce and an AUD trading at 0.70 would equal $2000 gold in local terms, as would USD gold at $1300 an ounce, provided the currency fell all the way to 0.65 vs. the US Dollar.
What transpires with the gold price and the currency markets between now and the end of 2016 remains to be seen, but a $2000 gold price, amazing as it sounds, is well within the realms of possibility.
21st March 2016