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At the current moment, most of commodities are in bad shape mainly due to oversupply of just about everything on the market: there is too much of steel, oil, aluminum, copper, iron ore and so on. Hence, as these prices continue to go down this year, what we need to see are big supply side adjustments from manufacturers in order to possibly stabilize the market over the next years, namely 2017-2018.
Amid a sharp drop on indices around the world since the start of the year, gold rallied strongly; however, following a slight uptick on Chinese markets, the precious metal posted losses again. Does this drop really mean that the rally is over?
This is not necessarily so. In fact, Chinese markets remain very weak; therefore, gold is moving up as stock markets are all in bad shape. Most of the equities are down more than 20%, which is the definition of a bear market. In other words, the bullion is moving in an inverse fashion to equity markets.
I believe that an investor's view on gold should be completely based on what they think the world stock markets will do this year. If they suppose we are going to have a big correction of 10-15% in equities, gold can move up possibly to $1,200 or $1,250 an ounce. The other scenario is, if stock markets stabilize and oil prices go up, the precious metal could come back down to the $1,000-level.
Many analysts predict prices going perhaps even below $1,000 as interest rates are increased in the US, which could happen as soon as March. Do you share this view? What other fundamentals can influence the performance of the bullion in the nearest future?
We do not know for sure when the Fed will raise rates. In their own policy statement they suggest that interest rates might be increased four times this year; however, nobody really believes that. In my view, they might increase rates once or twice in 2016. The thing is that if they continue raising rates, there will be significant pressure on gold; however, I do not think it will break the $1,000-level.
In spite of that, if we do break this important level, we could possibly go to $950; yet, the reason it would break or go below $1,000 is if the equity markets stabilize and move higher and the economy in the United States continues to do well, while the Federal Reserve decides to raise rates at least two more times.
Nevertheless, if the Fed hikes rates one more time it will not make much of an impact on gold, to my mind, but if they do raise interest rates twice, gold will certainly be under pressure.
What is your current forecast for the bullion price in the next three months?
My current forecast for the Q1 of 2016 is in a range between $1,170 on the upside and around $1,025 on the downside respectively.