Gold prices set to recover from 5-yr lows in 2016 – HSBC
Gold will finally bounce back in 2016 after repeatedly hitting five-year lows in recent months, HSBC said in a report on Wednesday.
The bank sees gold averaging $1,160 this year, $1,205 next year, $1,300 in 2017 and $1,325 over the long term. It predicts a wide gold price range of $1,025-$1,275 for 2016.
Renewed US dollar strength has weighed on gold ahead of a widely anticipated rise in US interest rates next month. Spot gold recently traded at $1,069.0/1,069.4 per ounce, down $6.20 on Tuesday’s close.
Although the bounce has taken longer than anticipated, 2016 could see a more decisive recovery. According to the bank, there are three main drivers for its mildly bullish stance.
Emerging market demand has already set a floor for gold prices, it said, and buying from India and China, which together account for nearly two-thirds of gold jewellery and physical bullion consumption, is likely to increase in 2016.
A Gold Monetization Scheme being introduced by the Indian government and designed to reduce gold imports is unlikely to impede demand.
And while economic growth in China is slowing, it is still strong by historical standards – HSBC expects incomes to keep rising enough to support growing gold purchases.
Emerging market buyers and sellers are highly price-sensitive, it noted. Prices below $1,100 attract buyers but they shy away from purchases when gold is near $1,300.
As well, a stronger euro will be supportive for gold – the bank expects euro-dollar to reach 1.20 by the end of next year, which would push gold above $1,200.
“A US rate rise may, in itself, also be supportive of gold,” HSBC said. “During the last four Fed tightening cycles, gold prices tended to weaken going into a rate rise and rally for the next 120 trading days afterwards.”
HSBC also expects investors to become net buyers of gold ETFs again in 2016. Other investment categories such net long positions on the Comex should also increase, it said.
“A recovery in ETF holdings and net long positions closer to historical levels should help put the market on a positive course for 2016,” the bank said.
It also expects central bank buying to keep rising and, with supply largely unchanged, this creates a favourable demand/supply backdrop.
Central bank demand has been strong this year at around 450,000 tonnes, “triggered in part by low prices and the prestige element that gold holds for emerging market central banks”, HSBC said.
It forecast the official sector to purchase around 500 tonnes in 2015, a 35-tonne increase on last year, and 450 tonnes in 2016.
“While we expect 2016 purchases to be down on 2015 levels, they would still be historically high and hence price supportive,” it said.
Source: thebulliondesk – Gold prices set to recover from 5-yr lows in 2016 – HSBC
