Gold prices were not very exciting in 2015, and concerns were growing among investors of the precious metal about its future. Today, everyone from investors to speculators are asking where might gold prices go next.
Professional investors and those who truly believe in the value of gold should not be afraid of buying undervalued investments. The fact is, gold is presenting a terrific opportunity. 2014 may have been somewhat disconcerting, but the forecast for gold in 2016 is very optimistic. Don’t be misled by the naysayers.
What the Experts Believe Gold Prices Will Reach This Year
Those who listen to mainstream speculators about the direction gold is headed were probably rather disappointed last year when Citigroup Inc lowered its forecast. The bank lowered its price to $1,050 from $1,195. Other big banks held to similar estimations.
If you only pay attention to the technical factors and fundamentals of gold prices things will become clearer. Gold has been set up to make solid gains this year.
The basic law of supply and demand can justify the price of most anything under the right circumstances. This is true even for gold. When demand is high and supply is low, rising prices are the expected result. As it stands, that is exactly the situation gold is in. Demand is higher than ever, even as the supply is rapidly dwindling. Nevertheless, the central banks keep buying it up.
Consider the fact that the second quarter of 2015 was the 18th consecutive quarter in which the big central banks were the biggest buyers of gold bullion. They purchased over 137 tons of it. That’s 15 percent more than the five-year median of their demand for the metal. In the first quarter of this streak, they bought 123 tons.
Looking at central banks that have already collected a large stockpile of gold, the picture becomes even more compelling. The central banks are not selling their gold.
The Central Bank Gold Agreement, for example, is an agreement between the European Central Bank and 20 additional big European banks on the amount of gold they are allowed to sell in a given year. They control a 5th of all the gold ever unearthed in all or known history.
What’s more, they have struck an agreement that they will sell no more than 400 tons of gold in any one fiscal year.
Here’s where their demand for gold becomes crystal clear; in 2013, they only sold 3.3 tons of gold bullion. In 2014, they sold just 6.8 tons. Keep in mind, their selling limit each year is 100 tons. Since 2009, they have sold only 210 tons. That is far below the quota.
We have not seen the big central banks hoard gold like this before, not for a very long time at least. Analysts think it means something big for the future of gold. It’s almost like the big banks know something that the rest of us don’t.
You can expect that the central banks will continue to be the greatest net buyers of gold in 2016. And you can expect the sharpest demand to shift to small and emerging markets. These small economies won’t have enough gold, and they will want more. The price won’t be their main deciding factor.
Gold Forecast for 2016
We’ve heard a lot of questions about gold prices. Investors want to know why prices are not rising if conditions are good. The main underlying problem is irrationality and sentiment among investors. Investor sentiment is a huge factor. We may wish that they would look at things more realistically, but the fact remains that demand drives price and sentimental investors don’t change their minds easily.
At the moment, they are settled on the idea that a big deflation is coming and that higher interest rates will not be beneficial for gold stocks. These sentimental investors are ignoring the facts and have been selling gold in a state of panic
Now that we are paying attention to the basics, we’re beginning to see an encouraging picture for the precious metal as we go forward. With all of the many unexpected changed and developments in the world market, we should not be surprised to see gold prices begin to soar in the ladder half of this year- and for the first in three years.
Gold looks to be rapidly transforming into an exciting opportunity in the coming months. We wouldn’t be shocked to see gold hit 2013 level highs in 2016. But where the real excitement lies is in the possibility of it exceeding 2013 level peaks in 2017.
Regards,
Ethan Warrick
Editor
Wealth Authority
