What are the factors to influence Gold in 2016?

UNITED STATES October 19 2015 10:35 AM

NEW YORK (Scrap Register): Looking at 2016, Natixis believes the price of gold will continue to be heavily influenced by the Fed’s interest rate decisions. Indeed, the expected path of interest rate hikes will be the main driver behind the price of gold.

The US economy is growing and is expected to continue to do so into 2016-17. A strengthening dollar and higher yields could continue to contribute to the lowering of gold prices, especially considering the fact that rising interest rates increase the opportunity cost of holding gold.

Loose monetary policies in Europe and Japan will help weaken these currencies versus the dollar, which will further strengthen the green-back.

Demand from central banks and China are expected to remain weak compared to previous years. Supply from physically-backed ETPs is expected to continue at a slow pace.

On a more supportive note for gold, Indian demand for the metal is expected to rise next year as the economy continues along its growth path. Indian demand for gold is positively correlated to higher GDP, spending power and the monsoon.

Bearing in mind this relatively pessimistic view of demand for gold, Natixis sees gold averaging $990 an ounce. For 2017, Natixis expects gold prices could average $1,020 an ounce. Prices are expected to rise as mine supply starts dropping due to strong cuts in capex over the previous five years.