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Outlook 2016

Expect Gold to Fall Towards $900 An Ounce In 2016 – ABN Amro

(Kitco News) - Gold investors will have to wait at least one more year before they can expect to see a sustained recovery the gold market, according to analysts at ABN Amro.

In its 2016 gold outlook report, released Tuesday, the Dutch bank said that it expects to see more weakness in gold and silver at the start of 2016, with prices dropping below $1,000 an ounce and $13.50 an ounce, respectively. The analysts added that they don’t expect to see prices pick up until mid-2017.

The biggest factor weighing on the gold market will be a stronger U.S. dollar and continued expectations the Federal Reserve tightening.

“We expect investors to continue to liquidate positions in the months ahead because of a higher US dollar and higher U.S. rates. It is likely that new lows in prices will be reached before the end of the first quarter of 2016,” the analysts said in the report.

“We expect the Fed to raise rates very slowly in 2016, but even this scenario is not priced into markets. A rise in U.S. Treasury yields should push gold prices towards USD 900 per ounce or even below in 2016 mainly because of investor position liquidation,” they added.

Although the analysts are negative on gold next year, they also noted that there is the potential to see volatile periods, which will support prices in the short-term.

“Gold prices may be supported in waves of risk aversion. However, when there is systemic risk in financial markets it will not behave as the ultimate safe haven asset. For example, at the height of the global liquidity crisis (when there was a shortage of liquidity) gold prices dropped sharply because investors valued cash more than gold,” they said.

It is not until the third quarter of 2017 that the bank expects to see gold and silver prices to recover.

“Lower mine supply and healthy jewellery demand should also provide support to gold prices in 2017,” the analysts said. “Over the coming years we expect retail investment share in total gold demand to increase further. As a result, gold prices will become more sensitive to the behaviour of investors.”

According to the analysts’ forecasts, the bank expects gold prices to average $950 an ounce in 2016 and $944/oz in 2017. For silver, the analysts expect to see an average price of $14.10 an ounce next year and $16.30/oz in 2017.

By Neils Christensen of Kitco News; nchristensen@kitco.com
Follow me on Twitter @neils_C

 

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