(Kitco News) - INTL FCStone looks for gold to fall below $1,000 an ounce during “another difficult year for the bulls” in 2016, perhaps hitting $950, although the firm also sees a high above $1,200.
As 2016 gets under way, the yellow metal has drawn a bid from geopolitical shocks, such as the deterioration in Saudi Arabia-Iran tensions. Equities have been on the defensive.
“We will have to see whether the wobbly start we have seen so far in 2106 in a number of equity markets – if sustained – will change gold’s prospects going forward,” INTL FCStone said late Tuesday. “Outside of this, the rest of the variables arrayed against gold do not look that bullish heading into 2016."
Market participants have been exiting from gold exchange-traded funds in recent years.
“Investors also have to contend with a stronger dollar and the prospect of further U.S. rate increases coming our way,” the firm said. “The physical side of the market also looks quite uninspiring; jewelry demand in both India and China is off, as
rural incomes in India are under pressure on account of adverse monsoon conditions, while in China, the anti-corruption campaign has also hurt sales. Although we have seen some stepped-up central bank buying this past year…we find that central-bank buying seldom moves the gold price needle much.
“We expect prices to trade within $950–$1,230 in what will likely be another difficult year for the bulls.”
The firm looks for a silver range of $12.50 to $15.50. The metal tends to track moves in gold; however, INTL FCStone does list some bright spots for silver. Retail investment interest has been strong, with the U.S. Mint reporting record coin sales in 2015. Also, the solar-energy industry is growing and is a “promising source” of offtake for silver.
INTL FCStone called for platinum to trade between $750-$1,100, with analysts commenting that many of the forecasts from investment banks are well above current prices and thus may be too high.
Values have been weighed down by a resurgence in supply, concerns about Chinese demand and a stronger dollar, said the firm. Analysts also cite worries about platinum demand after the Volkswagen emission scandal, although they also point out that so far, the fallout on European car sales seems to be “negligible” as 2015 sales topped forecasts. Platinum and palladium are used in auto catalysts.
“The price weakness has been prompting governments, like Zimbabwe, to propose royalty cuts and a reduction in export duties in an effort to help struggling miners,” INTL FCStone said. “Ironically, while these measures may help in the short term, they will not do much to stem supply growth.”
INTL FCStone sees palladium trading between $430 and $720. Prices fell in 2015 despite strong U.S. auto sales, the firm pointed out.
“However, palladium prices seem to be weighed down by a market that is more than capable of servicing existing demand given that supply remains ample,” INTL FCStone said. On top of this, ETF holdings fell.
“Moreover, with widespread concern about a global manufacturing slowdown growing, palladium will likely continue to struggle over the course of 2016,” the firm said.
By Allen Sykora of Kitco News; asykora@kitco.com
