The price of gold will continue to be heavily influenced by the US Federal Reserve’s interest rate decisions in 2016, broker Natixis said in a report on Friday.
It forecasts gold to average $990 per ounce in 2016 and $1,020 in 2017. Gold was last at $1,154.9/1,155.2 per ounce today, up $15.20 on the previous close.
Prices are expected to rise as mine supply starts dropping, due to strong cuts in capital expenditure over the previous five years, it said.
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 greenback, it added.
Natixis expects demand from central banks and China to remain weak, compared to previous years. As well, supply from physically-backed ETPs is expected to continue at a slow pace.
But Indian demand for gold 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,” it said.
Silver will remain under pressure, looking into 2016 and 2017, from improvements in the US economy and the much-anticipated interest rate hike, Natixis said.
It sees silver averaging $12.80 per ounce in 2016 and $13.40 in 2017. The metal was last at $15.76/15.81, little changed from the previous close.
“Silver could further suffer because of the strong cultural affinity US retail investors have with the metal.”
“As interest rates rise between 2016 and 2017, so (does) the opportunity cost of holding silver,” it said.
The share of investment demand has dropped to 18 percent of total demand in 2014, and it expects it to continue dropping towards eight to nine percent.
Demand for silver from the electronics industry is expected to rise slowly. “We don’t expect this level of demand to compensate for the drop in investment demand.”
In PGMs, Natixis remains bullish on a platinum recovery, should a fundamental shift in consumer preference towards gasoline not take place.
“Although we think that generally there will be a tendency for a drop in diesel automobile demand, we still believe prices are well below where they should be.”
It forecasts platinum prices to average $1,120 per ounce for 2016 and $1,375 for 2017. The metal was last at $972/977, up $32.
Prices in 2017 could further benefit from expected lower mine output and stronger automobile sales in Europe.
For palladium, it expects to see growth in the next two years in automobile demand from countries that are heavy users of gasoline, although at a slower pace than in previous years if the Russian and Brazilian economies remain weak.
It expects Chinese consumer confidence to return next year and in 2017.
As for India, anticipated growth in the country’s economy might further contribute to an increase in palladium prices through higher car sales.
It expects palladium to average $715 per ounce in 2016 and $740 in 2017. The metal recently traded at $709/714, up $13.
(Editing by Martin Hayes)