The World Gold Council (WGC) has said in its review of the gold industry for 2015 and outlook for 2016 that the effect of the U.S. dollar on the commodity is “overdone”.
WGC said it does not forsee the U.S. dollar having a similar effect on the price of gold in 2016 as it did in 2015.
It said the price of fell by more than 11% in 2015 in dollar terms, as the U.S. currency strengthened across the board. However, WGC added, more than 90% of physical demand came from outside the U.S. “For all these non-dollar investors, it is the local price – and not the U.S. dollar price – that matters most.”
“During 2015, the non-U.S. dollar price of gold has held up even moving up in some currencies.
“In our view, there are important conditions that are likely to make 2016 different from 2015: Interest rates are not a dominant driver of the gold price once the effect of the dollar is taken into account and we believe that the effect of the dollar on the gold price is overdone; the gold market in emerging economies continues to expand, highlighting the crescent importance that this market will have on price discovery; amid expensive stock valuations and high global market risks, gold’s role as a portfolio diversifier and tail risk hedge is particularly relevant,” the World Gold Council added.
