Gold prices to hit new lows

Downtrend in gold to continue in first part of 2016 due to higher interest rates, US dollar

Gulf News

Dubai: The downtrend in gold will continue in the first part of 2016 because of higher interest rates in the United States and stronger dollar, analysts have said.

Carsten Menke, commodities research analyst at Julius Baer, said that the precious metal is expected to remain “out of favour” among investors next year.

“Gold prices are in a longer-term downtrend that is driven by fading investment demand. Given the outlook for sound growth, higher interest rates and muted inflation, gold should remain out of favour among investors also next year and the downtrend should continue,” Menke told Gulf News.

In her latest analysis, Georgette Boele, coordinator for foreign exchange and precious metals strategy at ABN Amro, noted that new lows in prices could be reached before the end of the first quarter of 2016.

“We expect gold prices to break below $1,000 per ounce in the coming months,” Boele said.

Gold has been battered over the past several weeks, primarily because of rising expectations of an interest rate increase by the US Federal Reserve before the end of the year.

Last December 16, the Fed finally increased its Federal Funds Rate (FFR) target by 0.25 percentage points, from the previous 0 per cent to 0.25 per cent range.

As of Sunday, gold prices in Dubai remained unchanged from more than two weeks ago, prior to the rate hike decision. The precious metal was retailing at Dh129.50 per gram for 24K and Dh122.75 for 22K as of 3pm. The prices for 21k and 18K stood at Dh117.50 and Dh100.75, respectively.

Gold had managed to recoup some losses due to the weakness in the greenback and global equity markets.

Boele said that the downside in gold prices may be limited towards the end of the year given that there is “low activity” during the holidays.

“We expect the start of 2016 to be negative for precious metal prices. It is likely that investors will continue to liquidate positions in the months ahead because of a higher US dollar and higher US rates. As a result, new lows in prices could be reached before the end of the first quarter of 2016,” Boele said.

Menke said their 12-month forecast for gold is $1,000 per ounce, which is based on the expectation of further fading investment demand.

“In terms of US monetary, Julius Baer expects just one interest rate hike this year and none next year. Should the Federal Reserve be more aggressive than we think, stronger selling by investors could put more pressure on prices, adding to headwinds from a stronger US dollar,” he added.

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