By Paul Ploumis (ScrapMonster Author)
May 09, 2016 12:50:40 AM
(Kitco News) - Precious metals remain the 2016 commodity leaders, with silver posting a whopping 25% year-to-date gain and gold showing a 21% advance. The year is off to a good start for gold investors. But, the party may be just getting started. A bevy of economic, monetary, currency and technical factors continue to develop in gold's favor, which argue for the potential for higher gold prices in 2016. Let's take a look.
Global growth remains sluggish. GDP forecasts in the G-3 economies are being downwardly revised. Example: Credit Suisse downgraded its 2016 Japan GDP forecast to 0.4% from a previous 0.9% outlook. Credit Suisse forecasts a 1.7% real GDP growth rate for the U.S. this year, and a 1.5% rate for the Euro area. Low global growth keeps central bank policies weak and negative, which is gold-bullish.
Low rates for longer in the U.S: A ho hum April employment report erased chances of an interest rate hikes in June. Non-farm payrolls were forecast in the neighborhood of 200,000 for April, but the U.S. economy only delivered 160,000 new jobs. BNP Paribas expects no rate hikes from the Federal Reserve in 2016. That's gold bullish.
Western investors show renewed appetite for gold. Strong ETF inflows were seen into gold funds in the first quarter from western investors. While Chinese jewelry demand was weak in the first quarter of 2015, amid slowing economic activity there, western investors stepped into the gold market and picked up the baton. Data shows that investors added 330 tonnes of gold to their ETF holdings in the first quarter of 2016, which reverses outflows from the previous three quarters. ETF inflows continued to increase in April, with nearly 40 tonnes of new purchases reported.
U.S. stock market entering seasonally weak period. The old "Sell in May and Go Away" adage has solid historical numbers to back up the equity market weakness during the current time period. The so-called "Best Six Months" which include November-April have produced an average DJIA gain of 7.5% since 1950 compared to an average gain of just 0.4% during the months May to October, according to the Stock Trader's Almanac. Gold bullish—weakness in equities attracts safe-haven demand in gold.
U.S. dollar index is hanging on by a thread. The U.S. dollar index rebounded this week, after breaching major support at the August 2015 low at 92.60. The dollar has recovered for now, but the interest rate policy outlook (no rates in 2016) will act as a weight on the dollar this year. Gold bullish—the yellow metal shows an inverse relationship to the dollar. See a key chart about why the U.S. dollar is vulnerable this year: Read more on that in last week's story on Kitco here.
Bullish gold chart. Last but not least, the daily Comex gold futures chart reveals a bullish triangle pattern. See Figure 1 below. Gold bulls have busted out to the upside from the triangle, which is a bullish continuation pattern. The top of the triangle at $1,223.90 now stands as support for the market. And as long as that holds firm, the bullish breakout will remain intact. Triangles offer measured move objectives for traders.
Courtesy: Kitco News