Gold loses its shine
Gold experienced a 5-year low towards the end of 2015, closing in at below $1100/ ounce. This has affected the mining industry as well as world commodity markets for two main reasons.
– The strong dollar & US Fed rate hike – the value of the US dollar follows an inverse relationship with commodities. This is because a higher dollar, along with a hike in US interest rates means higher returns can be generated elsewhere rather than in commodities.
– Chinese market – The slowdown in Chinese equity markets have brought down gold prices as the PBOC have bought far less gold than expected, leading to an over-supply
Oil slump continues
Oil prices fell as low as $36 in 2015 and the reason boils down to a simple answer of supply and demand. The United States have doubled oil production in the last decade due to technological breakthroughs in hydraulic fracking which has significantly reduced US oil imports, leading to an over supply of oil in the Middle East & Africa. Furthermore, a reduction in the growth of emerging market economies, particularly China, has contributed to the fall in demand of oil. However, the question remains whether the oil producing cartel, OPEC, will ever take a stand against this imbalance of supply and demand in world oil markets.
Global currency war
China’s attempt to devalue the Yuan against the US dollar to boost exports and growth has led to major global currency war towards the latter half of 2015. Chinas devaluation would eventually lead to the People’s Bank of China, Bank of Japan and the European Central Bank being pushed into unveiling more stimulus (policy changes). This ‘war’ would intensify further as the US Fed increases interest rates, leading to increasing currency competitiveness in world markets as China fights to be the world’s reserve currency.
Greece endured a year of fiscal horror as its debts increased and pressure mounted on them for paying back their creditors. This was met with an increasing resistance to not adopt austerity measures and economic reforms in the beginning of 2015. However, after further pressure, Greece agreed to austerity measures on July 2015, which led to the country receiving another bailout package worth up to $96bn but with a debt-to-GDP ratio of 175%, should the Greece be now pushed to exit the European Union?
US Federal Interest Rate hike
2015 had been long been touted as the year the Fed’s would increase rates for the first time in nearly a decade and this came true towards the tail end of 2015, when the Fed’s raised interest by 25 basis points up to 0.5%. This comes at a time where the US economy has gradually recovered from the effects of the recession and where employment and consumer confidence is steadily growing.
This of course benefits savers however, it does take a big hit on borrowers and emerging market economies such as India, China and African economies. Now the wait remains for the UK to raise it’s interest rates.