Analysts Don’t See Much Upside for Gold Prices in 2016
The New Year could be rough for precious metal investors. At least, that’s according to the latest gold price forecast for 2016 issued by the big banks.
Back in 2013, when gold prices started to decline, big investment houses turned extremely bearish toward gold. Some called it a “slam-dunk sell,” and it was even called a “pet rock” not too long ago. However, as it stands, that sort of sentiment is waning.
This could be great for precious metal prices ahead. It could bring in buyers who ditched gold and sold.
What Big Banks Are Saying About Gold Prices in 2016?
UBS Group AG (NYSE:UBS) forecasts gold prices to be around $1,250 an ounce in 2016. The investment house said, “We maintain our core constructive view, expecting gold to stabilize and eventually recover up ahead.” The bank added, “We think that gold has already done a lot to adjust to the current macro environment and anticipate further changes. We expect any downside from here to be ultimately contained.” (Source: “UBS Sees Gold Averaging $1,250 In 2016; Any Weakness ‘Unlikely To Be Sustained’,” Kitco News, October 9, 2015.)
Citigroup Inc. (NYSE:C) is slightly on the bearish side, but it’s nothing too surprising. It expects gold prices to close around $1,110 an ounce in 2015 and by the fourth quarter of 2016, it expects the precious metal to sell at $1,050 an ounce. (Source: “Investment Strategy Insights,” Citibank Wealth Management, last accessed November 16, 2015.)
Bank of America Corporation (NYSE:BAC) says the precious metal could fall to $1,000 in 2016. Why? According to the Bank of America, “Continued hawkish comments from the Fed against falling inflation are our most notable concern.” It added, “The combination of higher nominal opportunity costs and lack of inflation has hardly ever been bullish in the past 40 years.” (Source: “BoA ML cuts 2015, 2016 gold price forecasts,” The Bullion Desk, September 2, 2015.)
Despite the dire warning about gold prices, the Bank of America also said that by the fourth quarter of 2016, gold prices could reach $1,250. It is also interesting to note what the bank said about what could drive gold prices higher: “Competitive [currency] devaluations could ultimately bring about a turning point in gold.” (Source: Ibid.)
Gold Prices Could Bottom Here
When looking at the long-term chart, I want to point to a key technical indicator called the “Fibonacci retracement.” This indicator tries to predict the potential support and resistance levels. With this said, please look at the chart below, paying close attention to the horizontal blue lines.
Chart courtesy of www.StockCharts.com
Notice that the line in the middle of the chart (third from both the bottom and the top, or the 50% retracement level) has acted as a solid support level for the gold spot price for a few months. I wouldn’t be shocked if this is the area where gold prices bottom and begin their upside move.
Gold Price Outlook for 2016
I am looking at the gold market on a very basic level. As it stands, demand for the yellow metal is increasing and the supply side is expected to suffer. Basic economics says this is a perfect recipe for higher gold prices ahead.
Even though big investment houses are slowly turning optimistic or neutral toward gold, there’s still a lot of pessimism toward it. I believe 2016 will be a great year for gold prices. I don’t see the metal trading anywhere close to the current level it trades at by the end of next year. With this, I continue to pay attention to precious metal mining companies; they will be the biggest beneficiaries of higher gold prices.