04 May A Golden Outlook For 2016?
2015 ended with gold slumping to a 6-year low. So what’s the outlook for gold in 2016?
THE DEMAND FOR GOLD TO INCREASE
As Frank Lesh, a trader at Future Path Trading LLC said: “At the beginning of the year, people tend to look at different areas of investment, and gold is at an attractive level…There’s enough uncertainty as we start the new year, and people feel that gold is a safety vehicle.”
So what’s the uncertainty all about and what’s causing the demand for gold to increase? Some key factors to note about recent events include:
- The US dollar’s overvaluation and its rising value measured against commodities.
- Trouble in the Eurozone with Greece (and potentially Spain and Portugal in 2016) saw the overvaluation of European government bonds, now trading with negative yields.
- Emerging markets equities sliding the most since August and the Dow Jones Industrial Average sinking more than 300 points.
Tension in the Middle East, with Saudi Arabia severing or downgrading ties with Iran.
- With such uncertainties, it can be predicted that investors will begin to look to safe haven assets such as gold, which can already be observed. At the start of 2016, investors bought 26.8 metric tons of bullion through exchange-traded products backed by the metal, the most since January 2015. Gold is one of the few commodities doing well, with prices up 1.3 percent so far this year.
CHINA, THE ONES TO WATCH IN 2016?
As observed in 2015, China has been steadily increasing its gold reserves. In December, they boosted reserves for the sixth straight month and are expected to continue to do so in early 2016. Although it is unknown just how much gold China has in its reserves, it is quite possible that China and its citizens now have more gold than all the other central banks put together.
Some consider this a well-planned scheme to protect itself from a systematic crisis in western capital markets, which may well be on the cards in 2016. If so, perhaps it is wise to keep an eye on China and take note if you’re considering investing in gold this year.