No Reason To Hold Gold In 2016; Prices To Drop Below $1,000 - Natixis
Thursday December 03, 2015 15:54
(Kitco News) - French bank Natixis is adding to the current consensus among financial institutions that expect another year of weakness in the gold market, with prices to eventually fall below $1,000 an ounce.
Although the bank is not expecting to see prices “collapse” next year, Bernard Dahdah, precious-metals strategist, said that there is still no major incentive for investors to invest in gold – especially with the U.S. dollar expected to remain strong.
“I don’t see fears of major U.S. currency debasement emerging next year. I think the U.S. dollar will remain a safe-haven asset, so why would an investor hold gold?” he said.
Along with a stronger U.S. dollar, Dahdah added that he expects U.S. interest rates to be the dominant factor for gold next year. He added that the trajectory of U.S. interest rates will ultimately determine how fast and far gold prices fall next year. In its outlook, the bank said that it expects gold prices to average around $970 an ounce in 2016.
“If you have higher interest-rate yields, why would you invest in gold?” he said. “The costs involved in owning gold and the fact that it doesn’t generate a yield makes this asset expensive to hold.”
Dahdah added that he is expecting gold’s selloff to start in two weeks, when he expects the Federal Reserve to raise interest rates for the first time in more than nine years.
Dahdah is also extremely bearish on silver prices, expecting the precious metal to average only $12.50 an ounce next year.
However, there could be some light at the end of what has been a long, dark tunnel for the precious-metals market. Dahdah said that he does see prices bottoming out next year and rising in 2017. However he warned that investors should only expect to see moderate gains. The bank’s official forecast is for gold prices to average $1,020 an ounce in 2017. At the same time, silver is expected to average $13.40 an ounce.
“Unless we see another global financial crisis, I don’t think we are going to see a big rally in gold anytime soon,” he said.
Dahdah said he thinks mine supply will be the determining factor for higher prices in the long term. He added that mining companies started cutting back their exploration budgets in 2013 and the market should start feel the effects of lower mine output by 2017.