Why Supply/Demand Equation Will Push Up Gold Prices in 2015

Rising gold pricesHave you looked at the financial headlines regarding gold bullion recently? They are not very optimistic; in many cases, they are downright negative on gold prices. Big investment houses are bashing gold bullion, too.

Recently, UBS lowered its forecast on gold prices, saying in a report, “Within a three-month time-frame, we expect the precious metals complex to come under pressure mainly on the back of gold as market participants anticipate the first Fed rate hike.” (Source: The Bullion Desk, March 9, 2015.)

BNP Paribas, another major investment house, said about gold prices in its report, “We now see gold averaging $1,160/oz in 2015 and have introduced a forecast for 2016 of $975/oz.” (Source: Kitco News, March 12, 2015.)

Historically, investors have done well when they have gone against the trend and taken a position when the vast majority are downright negative on the same investment. I believe gold bullion offers that opportunity today.

Gold Forecast Bullish for 2015-2016 by Michael Lombardi

Fundamentals for Gold Bullion Shining Like Never Before

The fundamentals that drive gold prices higher continue to be ignored. Yes, the yellow metal is a hedge against uncertainty and currency devaluation. When uncertainty increases and currency values decline, gold prices go higher. But gold is also used in jewelry. With major gold producers reducing production at a time when demand from consumers is rising and on the backdrop of rising demand for gold bullion from central banks for their reserves, a classic supply/demand squeeze is in the works that could push up gold prices significantly.

Also Read: Gold Price Forecast for 2015: Positive Gold Outlook Ahead

But back to the inflation hedge and currency nature of gold bullion; are investment houses that are issuing these negative reports on gold bullion paying attention to what’s happening outside of the U.S.?

The only major currency that’s gaining strength right now is the U.S. dollar. Other major currencies are facing severe volatility. Look at the chart below of four major currencies: the U.S. dollar (green), the Canadian dollar (red), the euro (yellow), and the Japanese yen (black).

US Dollar Index

Chart courtesy of www.StockCharts.com

When it comes to the uncertainty surrounding currencies, it’s increasing to say the very least! As I have mentioned here before, the Federal Reserve and the Bank of England are the only central banks that are contemplating raising interest rates. Others are struggling and either printing more of their paper money or lowering interest rates even further, including the central banks of Australia, China, Canada, and Switzerland. Of course, the European Central Bank (ECB) has started a massive money-printing program.

Think Long-Term When Looking at Gold

I always pay attention to investments when they are down and out. Gold bullion and gold mining companies are in this situation. They are at the bottom of the list in respect to preference for investors, despite a contraction in supply and an increase in demand for gold bullion that will ultimately result in higher gold prices.

Keep a long-term perspective when looking at gold bullion and forget about the immediate-term pressure on gold prices and the current bearish sentiment; that’s a strategy that’s always worked for me.