Two weeks ago, the London Bullion Market Association released a new edition of its annual Forecast Survey. What does the new LBMA Forecast Survey say about the price of gold in 2016?
Gold Prices Will Increase
In this edition, a record thirty six analysts representing thirty one different companies participated in the forecast. Contributors forecast an increase in all four precious metals prices in 2016. They expect a rise of 12.7 percent for palladium prices, 5.4 percent for platinum and silver, and only 1.1 percent for gold. It means that experts are more bullish on the prospects of precious metals, including gold, than they were last year. Regarding gold, contributors predict that the price of gold will average $1,103 in 2016, 1.1 percent higher than the first half of January 2016. Although it is a bullish forecast, it implied only a partial recovery, since the actual average price of gold in 2015 was $1,160, i.e. $57 higher that the forecast (all prices are based on LBMA Gold Price P.M.).
Gold Prices Will Bottom Out in H1
The report was published on February 3, 2016, when the price of gold stood at $1,132. Since then, it has risen to above $1,200 (as of February 15, 2016). Therefore, it seems that forecasters underestimate the upside potential. However, investors should be aware that experts predict the average price, not the final price at the end of the year. They expect that gold prices will bottom out in the first half of the year and rally in the second half boosted by the demand from European and Asian investors. The expected average range of the price of gold is $978 to $1,231. There are also significant differences between particular experts. The most bullish is Joni Teves forecasting an average price of $1,225, while Martin Squires is the most bearish forecaster with the expected average price of $960.
What Will Be the Drivers of Gold Prices in 2016?
Unlike the World Gold Council, which focuses on jewelry demand and other irrelevant factors, the LBMA forecasters pay more attention to macroeconomics. Similar to our view formulated in the January edition of the Market Overview, experts believe that the outlook for gold prices in 2016 will be dominated by the size and frequency of the Fed hikes and by the U.S. dollar. Some analysts expect a more gradual and softer Fed’s tightening cycle and a following correction in the greenback, which could help underpin gold. Risk aversion (resulting from stock market volatility and concerns about China) may also help support gold. If markets begin discounting the possibility of a recession in the nearest years, the price of gold may see some support. Some experts also cite the U.S. presidential election, devaluation of the yuan and political uncertainty in the EU, Asia and the Middle East as potential drivers of gold prices in 2016. More bearish analysts point out the Fed hikes, a strong U.S. dollar and low inflation as negative factors for the gold outlook. They believe that once a Q1 relief rally is over, gold could find itself in trouble again in Q2 before a stronger end to the year.
Conclusions
The key takeaway is that the LBMA released its annual forecasts for precious metals prices. The contributors expect an increase of 1.1 percent for gold prices from mid-January, based on the idea that the concerns about global growth and tightening global monetary conditions after the Fed lift-off will reduce the investors’ appetite for risk and boost the attractiveness of gold. The LBMA Survey is definitely worth reading with many interesting opinions, however, investors should always remember that forecasting is very difficult and that historically speaking, LBMA forecasters were usually wrong, being either too bearish or too bullish.
Thank you.
Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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