Will gold drop to triple digits in 2016?

Despite gold starting 2016 as the best performing commodity, some analysts are predicting the metal will drop below US$1000 this year.

To date the metal has seen increasingly positive movement, shifting over the US$1200 mark earlier this month, the first time it has reached this level since June last year.

Much of this is due to investors flocking to gold and gold back funds as the market continues to face uncertainty and the oil price stagnates, with the metal representing a safe haven for investors.

“Investor sentiment remains broadly risk-off, which is positive for gold,” Jonathan Butler, a precious metals strategist at Mitsubishi Corporation in London, told Bloomberg.

“Looks like there is nowhere to put money at the moment that is safe or gives a decent yield,” David Govett, head of precious metals at Marex Spectron Group in London, added.

“The only market that is performing well is gold and that is attracting the spare money sloshing around the system.”

Spot prices jumped more than two per cent, lifting the metal to US$1200.97 in New York and to the highest price point for gold since June 2015.

It then shot up again on the futures market to US$1250 an ounce.

Gold it appears has a strong future ahead.

However some analysts are more bearish on the metal, expecting it to fall in line with other commodities, experiencing a rougher year ahead.

Bernard Dahdah, from French investment bank Natixis (and according to mining.com the winner of last year’s London Bullion Market Association’s gold price forecast competition), is predicting the metal to average around US$970 per ounce this year, with a low of US$900.

Dahdah predicted that “the biggest influence on the price of gold this year will be the expected path of interest rate hikes”.

“Natixis expects further rate hikes by the Fed this year, which should increase the opportunity cost of holding the metal,” he said in the London Metals Bulletin Market Association’s latest precious metals forecast.

“Outflows from physically backed ETFs are expected to continue as higher-yielding investments and a stronger dollar becomes more attractive to investors.

“The upside risk comes from possible delays in rate hike cycle due to a weak US performance or more severe economic issues in China.”

BNP Paribas’ Martin Squires also predicted a weak gold price, with an even more bearish US$960 per ounce average forecast, and a US$900 low for the metal.

“BNP Paribas believes that gold’s downward trend will remain in place throughout 2016, pressured by the slower global growth, strengthening US dollar and the associated expectation of three further US rate hikes this year,” Squires said.

“We are forecasting gold to average US$960 per ounce in 2016,” he said.

However he remained positive for the short term, stating there are transient positives for the metal.

Overall, the average of more than 30 analysts forecast a median price of US$1103 per ounce, with expectations of it shifting between a low of US$978 and a high of US$1231 per ounce over the year.


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