Gold price rally: 5 things to know about the precious metal

Gold's status as a cultural icon in Asia means many in the region pay close attention to fluctuations in the price of the shiny metal. Here are five things to know about gold and its latest price rally.

1. US Fed and strong dollar

Prices reached a two-week high on Thursday after the Fed raised concerns about the strong US dollar

Gold prices climbed to US$$1,233 (S$1,566) per ounce on Thursday, its fourth straight day of gains after falling to a 15-month low of US$1,183.46 per ounce on Monday.

The gains came after the United States Federal Reserve, in the minutes of its latest policy meeting, expressed concerns about the country's strengthening currency and tepid economic growth overseas.

Officials were worried that a burgeoning US dollar could impact the domestic economy, as imported goods and services become cheaper and more attractive. The minutes also showed Fed officials expressing concern that disappointing growth in Europe, Japan and China could crimp US exports.

This prompted investors to buy into gold, betting that the Fed is in no rush to cut back on its massive economic stimulus programme, which has kept global interest rates at rock-bottom for years.

Higher interest rates would weigh on the price of the metal, which struggles to compete with investments that offer yield.

Bullion investors had previously feared that strong US economic data would prompt the Fed to boost rates soon, a move that would dent demand for non-interest-bearing gold.

2. Safe haven appeal

The precious metal, which does not pay interest or a yield, is traditionally held as a hedge against inflation and volatility.

Low interest rates made gold attractive, as the opportunity cost of owning it is lower.

A rising US dollar also tends to hurt gold, which is priced in US dollars and becomes more expensive for foreign investors as the greenback appreciates.

3. Sentiment remains bearish

Gold slumped this year in part because of investors' expectations that the US Fed will taper stimulus and hike interest rates as the US economy strengthens.

Despite the uptick in gold prices this week, investor sentiment about the previous metal remains bearish.

Analysts still expect the Fed to raise interest rates in the first half of next year, which puts a dampener on the outlook for gold.

4. Gold prices peaked in the 2000s

Gold prices today are a far cry from the metal's heyday in the 2000s.

In 2007, the price surged 31.7 per cent over the course of the year, after rising 23.77 per cent in 2006. Gold was up 5.86 per cent in 2012, after rising 11.31 per cent in 2011.

At its peak in 2011, gold was commanding US$1,921 per ounce.

5. Asian buyers driving demand

Physical gold's status as a cultural icon in Asia means consumer demand is likely to continue thriving.

Demand from buyers in India - the world's second-largest consumer after China - is expected to peak in the last two weeks of this month during the Hindu 'festival of lights' or Diwali, which falls on October 23.

However, some analysts believe Asian buyers are holding out for even lower prices before returning to the gold market.

chiaym@sph.com.sg