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Gold 2016: Predictions on gold price this year. What can affect it?

Gold 2016

At the end of 2015 gold price has reached a 6-year low of $1046.20. Gold has been under large pressure and lost 10% in 2015 in a generally negative environment for commodities, namely a stronger US Dollar. At the beginning of new year though this commodity recovered a staggering 21% in a very short period of time, a time of economic turmoil and instability. This is due to strong investor demands on gold, short supply, as well as robust stance of many central banks.

2016 is sure to be full of financial and political volatility and the bear phase of 2011-2015 seems to be behind us, but not all agree with that. But if you take into account the up-move in the mid-term, it has not made a significant dent in the bearish phase of the last several years.

Gold 2016: Predictions on gold price this year and factors that can affect it.

In 2016 we should expect two scenarios. A further move upwards above the level of $1307 will happen, and if the resistance line of $1400 is breached, then the bull trend will become extreme. Or the contrary scenario, which is more likely, according to firm data and fundamentals, the later part of 2016 will show weakness and a possible a break below $1000 psychological mark. This will definitely happen if the US currency continues its upward trend.

In the new year Federal Reserve Bank of the USA will face a very-low inflation rate, in part because of low oil prices and steady economy. This will lead to moderate decreases in the US currency, alongside US interest rates. The end result will be more upward pressure on gold, which is also a safe heaven for times of turmoil, like the ones in the Middle East.

Also because of the past low gold price, central banks are likely to start diversifying their portfolios, moving away from US Dollar and buying large quantities of gold for storage. Similarly jewelery buyers, especially from Asia are continuing to purchase gold, as the local market responded well to such low gold price. This may all cause a mid-term increase in gold prices.

But current Fed tightening cycle that began in 2015 may trigger gold going bearish at the end of 2016. Other central banks are also continuing to be in easing mode that will definitely cause a stronger dollar. Against this backdrop investors are likely to start liquidating their holding in gold, while speculative bearish sentiment may kick in to send the commodity in search of new lows.

Finally, the most likely outcome for gold is to remain bullish in the first two quarters of 2016 due to central bank's buyers, netting more than 120 for China and Russia alone. At such profitable gold prices this is likely to continue until the Fed's decision to support US Dollar, which will likely happen in the third quarter of 2016. The yellow metal this year is presenting a great opportunity to invest, but beware of volatility and US rate hikes. And with supply/demand being distorted it is sure to be a rocky ride for any investor.

By Chieffinancing 25.07.2016

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