Gold Price Predictions for 2016
January 20th 2016
Opinion within the industry appears divided as to what the gold price is going to do in the coming twelve months. The new year has so far seen a general upturn in the price of gold, with the precious metal’s value increasing by more than £50 in the last month to around £775 per troy ounce. In the context of an overall drop since September 2011, it is uncertain whether this recent change is indeed the beginning of a bullish gold market, or merely a short-lived moment, with the bottom yet to have been reached. However, given the ongoing difficulties being faced in the global economy, there remains plenty of reason to believe that prices could continue the upward trajectory that we have witnessed so far in 2016. UBS have predicted an average price of $1,250 for the year, a solid improvement on 2015.
Recent news from the mining industry would appear to support such a forecast. Kelvin Dushnisky, president of the world’s largest gold miner Barrick Gold, has claimed that the gold mining industry has reached peak output, an event that should prove ‘bullish for the medium and long term outlook’. He told the FT that: ‘falling grades and production levels, a lack of new discoveries, and extended project development timelines are bullish for the medium and long-term gold price outlook.’
This, combined with wider market turmoil, could see prices shoot up as demand increases given gold’s historic appeal as a ‘safe-haven’ during uncertain economic times. Major stock exchanges such as the FTSE, Dow Jones, CAC 40, and the Shanghai Stock Exchange all experienced negative years in 2015 and such a trend looks set to continue in the coming months. A 60% jump in the Chicago Board Options Exchange Volatility Index over the last three months demonstrates an extreme lack of confidence in the stock market that could strongly influence demand for gold bullion .
Such a view is shared by DoubleLine Capital CEO Jeff Gundlach, who believes that gold could rise by as much as 30% to around $1,400/ Oz. He stresses gold’s popularity as a diversifier as the reason for its growth amidst a troubled global political and economic environment. He lists the continued downgrading of global growth, the prospects for a ‘full-on bear’ USA market with most stocks down 20% from their peaks, and the poor performance of other commodities and emerging markets as justification for a largely pessimistic economic outlook for 2016.
As ever, such troubled times should generate reasonable confidence that the gold price will increase over the coming year, as investors seek to diversify their portfolios by adding a commodity with a proven ability to hold its value. Indeed, this is evident from gold’s performance in overall largely bearish commodity market, in which its price has remained remarkably high in comparison with other commodities. ‘relative to Goldman Sachs Spot Commodity Index (GNX) the gold price is at an all-time high and about 30% higher than it was at its 2011 peak.’
Gold’s defiant performance in an otherwise bearish commodity market indicates that it is the safest place to invest at the moment, and demand could be set to increase over the coming months.