Gold Prices: This Indicator Says Gold Prices Could Soar in 2016

gold price forecast 2016This Could Send Gold Prices Soaring

While the Chinese market crash has spooked equity investors, one group is rejoicing. Gold bugs.

The recent global market upheavals put a firm bid under gold prices. The question is this: is it just a dead cat bounce or a real gold rally that could continue through this year? One indicator says gold bugs can expect more gains to come.

Let me explain.

The U.S. Federal Reserve was a little too late in their last policy move. The initial expectation was that the markets would contract following the rate cut. That didn’t happen and investors become more complacent with equities. Come this year, the Chinese market crash exposed the vulnerabilities in the markets. What followed was absolute chaos.

The December rate hike was expected to bring stability. It delivered quite the opposite. Since the Fed rate hike, stock markets around the world have been in free fall.

This comes as good news for the gold bugs. As you can see in the chart below, gold prices have been moving in the opposite direction to stocks. Each time the market drops, gold prices found a bid.

gold spot price cme chart 1

Chart courtesy of www.StockCharts.com

Likewise, if you look at the market volatility index (VIX), which depicts investors’ sentiments, you’ll notice a trend here, too, when compared to gold prices. The more volatile the markets, the higher the gold prices go.

gold spot price cme chart 2

Chart courtesy of www.StockCharts.com

The premise is simple: volatility scares investors into safe havens, like precious metals, of which gold is the most obvious option.

Problems in other markets are bullish for gold, too. Last week, Bank of America reported investors are pulling billions out of the junk bond market. As the defaults start to pile up, scared investors will have to put their money somewhere. (Source: “Investors pull $24 billion from equity funds in January,” MarketWatch, January 22, 2016.)

Gold is the most obvious answer.

The Bottom Line on Gold Prices

This market volatility is not going away anytime soon. Financial bigwigs like George Soros, Marc Faber, and Carl Icahn all see a recession coming. Meanwhile, the Fed’s unpredictable policy moves are putting the markets in further jeopardy.

Translation: gold prices could have a lot of upside in 2016.

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