Gold kicked off 2016 with its biggest one-day advance in a month, surging Monday by as much as 2% to two-week highs as a weakening Chinese economy shocked global stock markets and crude oil surged after Saudi Arabia cut ties with Iran.
Chinas Caixin manufacturing data for December signaled a contraction in the worlds second-largest economy, and that led to a stunning 7% plunge in the Shanghai Composite Index on Monday. Chinas woes in turn spooked U.S. markets, with the Dow shedding 400 points at one point and getting off to its worst start in 84 years.
This poor start to 2016 follows 2015s lackluster performance. Overall it was the worst year for the Dow since 2008, wrote Michael Snyder of The Economic Collapse blog.But of course the Dow was far from alone. The S&P 500, the Russell 2000 and Dow Transports also all had their worst years since 2008.It was such a down year for stocks that even Warren Buffett lost $11.3 billion in net worth last year.
Meanwhile, Saudi Arabia executed a Shiite cleric, a move that resulted in its Tehran embassy being attacked. Saudi Arabia now has cut diplomatic and commercial ties with Iran and banned travel there. The feud has now sparked rising geopolitical tensions and a boost to oil prices, which in turn is good for gold prices.
We could pick up in the course of two or three weeks all our losses from last year in gold if things heat up in the Middle East, Peter Thomas of the Zaner Group told Bloomberg. Obviously, the slowdown in China is real. With gold and silver at close to production costs, people are thinking, this isnt a bad place to be.
Gold jumped by about 2%, gaining about $20 at the peak of its run and topping $1,080 before falling back. Silver also rose, advancing by 2.7% to hit $14.17.
With strong demand coming from Asia as it gears up for its Lunar New Year holiday in early February, gold could see further gains ahead. Gold was pretty hard hit over the course of last year, Mitsubishi analyst Jonathan Butler said. With index rebalancing probably taking place over the next couple of weeks, we may see some shifting of investment flows back into gold as an underperforming asset.
Gold often seems to benefit at the start of the new year, added David Govett of Marex Spectron.