What can we forecast for the gold spot price in 2016 ?
Gold spot price has fallen during the first half of 2015, and has continued to decline in July. But what are the predictions for the price of an ounce of gold for this year end and for the year 2016 ?
The price of gold has not increased in the 1st half, leaving investors confused. All eyes focus on the direction of the dollar and the future monetary policy of the US Federal Reserve. It is likely that the current gold price already reflects possible future increase (for 2015) of US interest rates.
Evolution of the gold spot price this year.
The gold spot was down about 1% in H1 2015 in US dollars, but its evolution was different in other currencies. The volatility of the gold price was well below its average of 5 years.
| USD/oz | EUR/oz | GBP/oz | CHF/oz | JPY/g | RMB/g | INR/10g | TRL/g | |
| Average price | 1,206.3 | 1,080.7 | 791.8 | 1,142.0 | 4,663.0 | 241.2 | 24.367 | 99.4 |
| Yield | -1.0 % | + 7.4 % | – 2.0 % | – 7.0 % | + 1.1 % | – 1.1 % | – 0.1 % | + 13.8 % |
| Contribution FX | n.a | 8.5 % | – 1.0 % | – 6.0 % | 2.1 % | – 0.1 % | 1.0 % | 15.0 % |
| Volatility | 13.9 % | 17.8 % | 15.1 % | 28.4 % | 12.3 % | 13.9 % | 13.9 % | 18.1 % |
The main factors that contributed to the evolution of the gold price are:
- The uncertainty surrounding the future of Greece in the euro zone (Grexit).
- Increased risks of high volumes of low-quality debt issuance.
- Prolonged assessments in various capital markets – including the US and China.
- In addition, the Indian gold market has seen a positive change in government policy.
Gold spot price forecasts for the year 2016.
Gold has a dual nature : Consumer good (which runs parallel to economic growth) and capital good (protecting wealth in times of crisis).
Economic growth (and decline of market uncertainty) depress the appeal of gold as an investment asset. But growth increases the purchasing power of gold potential consumers and savers.
Conversely, higher levels of uncertainty increases the attractiveness of gold as a store of value.
Read also : gold, an historic safe value.
Impact of the greek crisis and collapse of chineuse stock market on the gold spot.
Many people expect the price of gold react much stronger to Greece defaults in June, the necessary restructuring of the debt Puerto Rican, or the decrease of the Chinese stock market. Instead, its price has remained relatively stable.
Traditionally, gold is considered a store of value and its price generally increases economic turmoil period as it is an effective face economic risk coverage.
The gold price reacts more strongly to systemic risks, when a major event overflows and spreads to other countries (financial crisis of 2008-2009).
A localized event does not react that much the price of gold. The bursting of the Internet bubble is a good example. The movements of the price of gold following the events in Greece and China have shown that these events remained locals, not globals.
During the financial crisis of 2008-2009, the gold price was heading down to the 4th quarter of 2008 – just before the collapse of Lehman Brothers. Losses on the stock market are then accelerated and the price of gold rose.
If the likelihood that Greece leaves the Eurozone increases, a stronger reaction on the gold price should follow. As the European debt crisis in 2010 – 2011, the deterioration of the situation in Greece earlier this year has increased the demand for coins and gold bars in Europe.
The fall of the stock market in China has not significantly impacted the price of gold. The measures taken by the Chinese government have protected the market to limit the impact on other markets. A larger correction of the Chinese stock market could have repercussions on other economies, increase uncertainty worldwide.
The perpetual search for investors yields increase the risks on financial markets
Besides the big news headlines, low rates throughout the world pushes investors to gain exposure to risky assets.
Many US stock indexes are at record levels. The price of Chinese stocks surged exponentially since 2013, and despite the fall of the EES Composite, prices remain high relative to historical levels.
The frequency and extent of major and historic events has increased over time, due to the growth of financial markets in the world and their interdependence.
A set of simultaneous events could lead to a stronger global economic shock, and make rise the gold price.
The following graph shows the monthly frequency of assets whose returns are in the range of – 5% (in purple) and accumulated losses observed during the 3 periods (in green).
Source : World Gold Council
Read also : why invest in gold in time of economic crisis ?
Some market players see the tightening of credit issuance and the low volatility of US equities as an opportunity to buy gold.
Investing in volatile assets may be difficult and expensive. Wealthy investors can enter the counter market agreement or in the derivatives market, because of attractive yields. But they require a more rigorous management of risk.
Gold on allows it to diversify the asset portfolio by providing a guarantee of protection in highly volatile products. The advantage is that the most liquid gold (So easily exchangeable), transparent and easily accessible. Gold is therefore a strategic component of an investment portfolio.
The relationship between gold and the dollar : the gold price increases twice during the period when the dollar is weak it fall when the dollar rises.
Historically, the price of gold rises when the dollar declines. But the gold-dollar relationship is not so symmetrical. If the dollar strengthens against the euro, it lost ground against other currencies.
Read also : what drive the gold spot price ?
Furthermore, the correlation of gold with equities was lower than average during periods when the dollar was up. This becomes critical in the context of portfolio allocation, the environment of the dollar is not relevant in terms of diversification.
According to media data, the Fed would provide a two rate hikes before the end of the year. The first increase is expected to occur by December to January.
However, our analyzes conclude that the gold price has already absorbed much of this expectation of rising interest rates. The price of gold should be insensitive to the first rise, but will be more sensitive to future rate hike rhythms.
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