Gold Focus 2016

Wednesday, April 6, 2016

gold bars At the end of March, Metals Focus released its Gold Focus 2016, looking at the developments in the global gold market and the future of gold prices. What are the main conclusions of the report?

End Of Bear Cycle In Gold Market?

The last day of March was very busy for gold analysts, as two important precious metals consultancies released their reports on the global gold market. Yesterday, we wrote about the Gold Survey 2016 published by Thomson Reuters GFMS, which is bearish over the short term, but argues that gold will find support due to the improving market fundamentals. The upcoming low is expected to be $1,150 and occur somewhere around the third quarter of this year. Today, we will say more about Gold Focus 2016, released by Metals Focus, a London-based precious metals consultancy set up in early 2013 by a breakaway group of former GFMS analysts.

Metals Focus is more bullish toward gold than Thomson Reuters, as it believes that gold’s rebound in early 2016 (gold rallied by over 21 percent from end-2015 to a $1,285 peak in early March) is likely to mark the end of the metal’s bear cycle. Although the company says that the correction in the gold market is possible in the second quarter of 2016, it expects that it will be only a temporary setback before prices increase again in the third and, especially, the fourth quarter. In the short-term, gold may slip back below $1,200, however, it should not approach the last year’s low of $1,046. The price of gold is forecasted to reach $1,350 in the fourth quarter of 2016, almost 30 percent higher than its December 2015 low (however, this is not to say that the ride will be smooth).

Why Will Gold Price Rise?

Why does Metals Focus believe that the price of gold will rise? Well, the reason is that the changed “expectations towards the outlook for US interest rates, concerns about monetary policy elsewhere, as well as turbulent equity and bond markets, have re-kindled institutional investor interest in the metal." The single most important headwind to gold investment last year was the outlook for US monetary policy, but the consensus forecast for US economic growth, and hence the Fed’s rate hikes, has shifted in favor of gold in early 2016. In other words, the change in investor sentiment is more likely to solidify than melt away in the months ahead, pushing the price of gold upwards. Moreover, the pace of the Fed’s hiking will be slow. Therefore, the upside for the US dollar is limited. Additionally, confidence in central banks is reduced and there are growing concerns towards the NIRP around the world. The turmoil in equity and bond markets and the growing view that commodity prices, in general, may have seen their lows are also positive for the gold market.

Conclusions

The take-home message is that Gold Focus 2016 represents a very positive view from one of the sector’s mainstream consultancies. Metals Focus is more bullish toward gold than Thomson Reuters GFMS, but both precious metals consultancies predict a correction in the gold prices in the nearest months, as some of the recent buying has been tactical rather than strategic in nature, before a rebound in late 2016. The companies differ in their outlook with the Thomson Reuters GFMS being more guarded. This indicates the transformation underway in sentiment toward gold, as an increasing number of gold analysts are convinced of the yellow metal’s medium- and long-term prospects. Although the recent inflows into the gold market have been significant, Metals Focus believes that the overall activity in the market remains modest, meaning there is plenty of scope for additional fresh investment. We agree that the long-term outlook for the precious metals sector is positive, but that much lower prices could be seen in the following months.

Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium-term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.

Arkadiusz Sieroń is the author of Sunshine Profits’ monthly Gold Market Overview report, in which he keeps subscribers up-to-date regarding key fundamental developments affecting the gold market and helps them prepare for the major changes. Arkadiusz is a certified Investment Adviser, a long-time precious metals market enthusiast, and a Ph.D. candidate. He is also a Laureate of the 6th International Vernon Smith Prize.  You can reach Arkadiusz at Sunshine Profits’ contact page.