Is gold headed for a correction? Top consultancies offer up mixed price outlooks for 2016

TORONTO – The earth’s top two gold consultancies have offered up mixed outlooks for prices in 2016.

Metals Focus and Thomson Reuters GFMS each launched their 2016 gold reports on Thursday. Both firms are cautious on gold in the short term, because they see prices pulling during the second quarter after rising a whopping 16 per cent within the first quarter. But Metals Focus thinks the second half of 2016 can be really strong, while GFMS is optimistic but more guarded.

Metals Focus predicted gold will peak at US$1,350 an oz within the fourth quarter, up from US$1,235 currently. The London-based firm said you will find clear signs the consensus on gold has “changed profoundly” as investors now believe the U.S. Federal Reserve will hike rates of interest at a far slower pace than ever before assumed. The Fed is becoming increasingly dovish due to economic headwinds.

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“Clearly, the Fed talk of 4 rate of interest rises this season has been dialed back quite significantly,” Philip Klapwijk, consultant to Metals Focus, said at a breakfast presentation in Toronto.

Klapwijk also noted investors happen to be very active gold buyers so far in 2016, with ETF holdings rising by a whopping 300 tonnes. As U.S. inflation ticks up, he explained institutional investors have concluded gold “is a good thing to maintain stocks of.”



In the short term, Metals Focus thinks gold will go through an overdue correction and slip back below US$1,200 an ounce. However, the consultancy doesn’t think prices will approach last year’s low of US$1,046, though it does expect the U.S. dollar to rebound.

GFMS agrees prices are prone to fall below US$1,200 soon, noting that physical demand in key Asian markets has already been weak. The organization also believes that prospects of further rate hikes will strengthen the dollar and then put pressure on gold’s appeal like a safe place, despite the fact that rate hike expectations have been dialed back.

The remarks from GFMS were cautious overall, though it does expect gold prices to find support from improving market fundamentals.

“The gold market and future price moves will remain highly dependent on sentiment-driven factors, a minimum of in the short term,” the firm said in its report.

The Metals Focus and GFMS reports were similar in other areas. Notably, both firms calculated that global mine production reached a new record in 2015 (about 3,200 tonnes). However they both expect global output to decline this year for the first time since 2008. Many analysts have stated that production declines are inevitable in the years ahead due to a lack of new discoveries and project delays and deferrals across the sector. That could ultimately be bullish for prices.

The two firms disagreed on gold’s overall supply-demand picture last year. Metals Focus calculated that there was a small deficit within the physical market of 12 tonnes, though ETF liquidations resulted in a general surplus of 122 tonnes. GFMS identified the surplus of 182 tonnes within the physical market, which grew to 354 tonnes after ETF sales.

Financial Post

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