News / Economy

    Fading Volatility Promises Long Period of Gold Stagnation

    FILE - Gold bars and U.S. dollar bills.
    FILE - Gold bars and U.S. dollar bills.
    Reuters

    Ultra-calm trading conditions in gold are becoming self-perpetuating as a persistent lack of volatility frustrates investors seeking a return, pushing them further away from a market that analysts say could be becalmed for years.

    Gold, which saw a dramatic reversal last year after a 12-year bull run took prices to record highs in 2011, has seen the spread between its daily price highs and lows narrow to just $15 an ounce this year on average, from nearly $25 in 2013.

    Implied volatility, an estimation of an asset's future volatility, has dropped in gold to around 12 percent this month from an average of 19 percent in August last year, and from highs of nearly 60 percent in mid-2008.

    With the dollar strengthening, equities showing a better return, and signs of inflation still notably absent from most developed economies, the metal has run out of reasons to rise.

    “We are pretty unexcited by the outlook of gold,” Charles Morris, head of absolute return at HSBC Global Asset Management, said. “It could stay in this range for another five years.

    “If inflation is under control for a long period of time, then gold will be under control for a long period of time, and because you don't get a yield, it is a waste of money to have a large position in gold.”

    Gold is not the only market to be losing momentum. Volatility in the global foreign exchange market approached historic lows in July, while average daily volumes dropped by almost 14 percent, data from FX settlement system CLS showed.

    “What the central banks have done to provide liquidity has pushed down volatility in the commodity market, and interest rates market, and indeed equities,” Credit Suisse analyst Tom Kendall said. “They all feed through to every part of the traded economy, so it is a problem for FX traders, it is a problem for interest rates traders, it's a problem across everything.”

    As an asset in its own right, gold does not lack price drivers at the moment. The problem is, they are working against each other.

    Federal Reserve policy is slowly normalizing after years of ultra-loose conditions, which had fed into rising gold prices. The U.S. central bank has signaled that it is ready to start thinking about raising interest rates, probably next year.

    That should be pushing prices lower, as should a rise in the dollar index this year. But working against that is uncertainty over the long-term inflationary effects of the monetary stimulus measures that followed the 2008 financial crisis.

    Gold has also taken support from outbreaks of violence in Ukraine and the Middle East, which some fear may destabilize a fledgling recovery in the European Union and push up oil prices.

    The fact that this unrest has not done more to push prices is adding to investors' caution over gold.

    “There has been very little and short-lived correlation between the Middle East problems, Russia and Ukraine with gold itself,” Adam Laird, investment manager at Hargreaves Lansdown, said. “There is a lot of concern among smaller investors that the market has not been able to react to wider political events.”

    Store of value

    Not all buyers are seeking price volatility. Those who buy metal as a store of value, for instance, prefer a stable market. This has particularly been true in India, historically the world's biggest gold consumer, where buying dried up during the violent price moves that followed the collapse of Lehman Brothers.

    But supply to Indian consumers has been constrained by restrictions on gold imports as the government tries to get its current account deficit under control, meaning its response to a more appealing price environment has been limited.

    Meanwhile buyers in China, which has recently overtaken India as the world's number one gold consumer, appear much less happy with price stability.

    Consumer demand is not in any event going to lead to a repeat of gold's scorching price rise of the last decade. The doubling in gold prices in the three years to September 2011 was overwhelmingly due to investment flows, as funds piled into the metal as a haven from financial market risk.

    What would turn gold around would be a significant rise in inflation, which few economists see happening any time soon. Until another clear driver emerges, investors prefer to stay on the sidelines.

    “Essentially, you have plenty of supply, [and] demand is likely to fall because of low volatility, rising interest rates and a strong dollar,” HSBC's Morris said. “You put all this together and you think: 'why are people going to come running'?”  

    You May Like

    Top US General: Turkish Media Report ‘Absurd'

    General Dunford rejects ‘irresponsible' claims of coup involvement by former four-star Army General Campbell, who led NATO forces in Afghanistan before retiring earlier this year

    Video Saving Ethiopian Children Thought to Be Cursed

    'Omo Child' looks at efforts of one African man to stop killings of ‘mingi’ children

    Protests Over Western Troops Threaten Libyan 'Unity' Government

    Fears mount that Islamist foes of ‘unity' government plan to declare a revolutionaries' council in Tripoli

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    London’s Financial Crown at Risk as Rivals Eye Brexit Opportunitiesi
    X
    VOA News
    July 25, 2016 5:09 PM
    By most measures, London rivals New York as the only true global financial center. But Britain’s vote to leave the European Union – so-called ‘Brexit’ – means the city could lose its right to sell services tariff-free across the bloc, risking its position as Europe’s financial headquarters. Already some banks have said they may shift operations to the mainland. Henry Ridgwell reports from London.
    Video

    Video London’s Financial Crown at Risk as Rivals Eye Brexit Opportunities

    By most measures, London rivals New York as the only true global financial center. But Britain’s vote to leave the European Union – so-called ‘Brexit’ – means the city could lose its right to sell services tariff-free across the bloc, risking its position as Europe’s financial headquarters. Already some banks have said they may shift operations to the mainland. Henry Ridgwell reports from London.
    Video

    Video Recycling Lifeline for Lebanon’s Last Glassblowers

    In a small Lebanese coastal town, one family is preserving a craft that stretches back millennia. The art of glass blowing was developed by Phoenicians in the region, and the Khalifehs say they are the only ones keeping the skill alive in Lebanon. But despite teaming up with an eco-entrepreneur and receiving an unexpected boost from the country’s recent trash crisis the future remains uncertain. John Owens reports from Sarafand.
    Video

    Video Migrants Continue to Risk Lives Crossing US Border from Mexico

    In his speech Thursday before the Republican National Convention, the party’s presidential candidate, Donald Trump, reiterated his proposal to build a wall along the U.S.-Mexico border if elected. Polls show a large percentage of Americans support better control of the nation's southwestern border, but as VOA’s Greg Flakus reports from the border town of Nogales in the Mexican state of Sonora, the situation faced by people trying to cross the border is already daunting.
    Video

    Video In State of Emergency, Turkey’s Erdogan Focuses on Spiritual Movement

    The state of emergency that Turkish President Recep Tayyip Erdogan has declared is giving him even more power to expand a purge that has seen an estimated 60,000 people either arrested or suspended from their jobs. VOA Europe correspondent Luis Ramirez reports from Istanbul.
    Video

    Video Calm the Waters: US Doubles Down Diplomatic Efforts in ASEAN Meetings

    The United States is redoubling diplomatic efforts and looking to upcoming regional meetings to calm the waters after an international tribunal invalidated the legal basis of Beijing's extensive claims in the South China Sea. VOA State Department correspondent Nike Ching has the story.
    Video

    Video Four Brother Goats Arrive in Brooklyn on a Mission

    While it's unusual to see farm animals in cities, it's become familiar for residents of Brooklyn, New York, to see a little herd of goats. Unlike gas-powered mowing equipment, goats remove invasive weeds quietly and without adding more pollution to the air. As Faiza Elmasry tells us, this is a pilot program and if it proves to be successful, the goat gardener program will be extended to other areas of New York. Faith Lapidus narrates.
    Video

    Video Scientists in Poland Race to Save Honeybees

    Honeybees are in danger worldwide. Causes of what's known as colony collapse disorder range from pesticides and loss of habitat to infections. But scientists in Poland say they are on track to finding a cure for one of the diseases. VOA’s George Putic reports.
    Video

    Video Wall Already Runs Along Parts of US-Mexico Border

    The Republican Party’s presidential nominee, Donald Trump, gained the support of many voters by saying he would build a wall to keep undocumented immigrants and drugs from coming across the border from Mexico. Critics have called his idea impractical and offensive to Mexico, while supporters say such a bold approach is needed to control the border. VOA’s Greg Flakus has more from the border town of Nogales, Arizona.
    Video

    Video New HIV Tests Emphasize Rapid Results

    As the global fight against AIDS intensifies, activists have placed increasing importance on getting people to know their HIV status. Some companies are developing new HIV testing methods designed to be quick, easy and accurate. Thuso Khumalo looks at the latest methods, presented at the International AIDS conference in Durban, South Africa.
    Video

    Video African Youth with HIV Urge More Support

    HIV, the virus that causes AIDS, is the top killer of teens in sub-Saharan Africa. But many youths say their experience with the virus is unique and needs to be addressed differently than the adult epidemic. VOA South African Correspondent Anita Powell reports.
    Video

    Video Pop-Up Art Comes to Your Living Room, Backyard and Elsewhere

    Around the world, independent artists and musicians wrestle with a common problem: where to exhibit or perform? Traditional spaces such as museums and galleries are reserved for bigger names, and renting a space is not feasible for many. Enter ArtsUp, which connects artists with venue owners. Whether it’s a living room, restaurant, office or even a boat, pop-up events are bringing music and art to unexpected places. Tina Trinh has more.
    Video

    Video Scotland’s Booming Whisky Industry Fears Brexit Hangover

    After Britain’s vote to leave the European Union, Scotland’s government wants to break away from the United Kingdom – fearing the nation’s exports are at risk. Among the biggest of these is whisky. Henry Ridgwell reports on a time of turmoil for those involved in the ancient art of distilling Scotland’s most famous product.

    Special Report

    Adrift The Invisible African Diaspora

    World Currencies

    EUR
    USD
    0.9105
    JPY
    USD
    106.21
    GBP
    USD
    0.7618
    CAD
    USD
    1.3171
    INR
    USD
    67.348

    Rates may not be current.