Many investors in gold bullion are undoubtedly looking at trend forecasts for 2016 hoping for better performance from their investments in the year to come following a disappointing end to 2015.

The good news is that early year performance for gold has bucked the trend of the financial markets which have shown signs of a “classic 10% correction”. What this means is that in essence the financial markets have been in an overvalued state and the correction seeks to encourage renewed growth by cutting the value to a more realistic valuation of the stock market as a whole.

The result of this has been seen already this year with gold prices rallying against this trend and achieving over $1,100 per oz for the first time in 2016. Although the price has fallen back slightly there appears to be three major factors that are believed to signal a strong, but still volatile year for Gold.

1. Mine Supply

Not always at the forefront of peoples thinking but still an important influence over the gold price. Supply from mines has risen each year since 2008 according to William Tankard.  Thomson Reuters Group’s Mining Research Director indicates output may well fall this year as older mines reach capacity, reflecting a dip in overall levels of mine investment and exploration in recent years caused by the lower gold price. Tankard indicated the practice of high grading ore to maximise its value against the falling price has also all but come to an end, leading to the production of less gold from lower quality ore.

2. Financial markets

In December the US Federal Reserve took the long awaited step of raising interest rates, albeit by only 0.25% and anti inflationary sentiment may well scupper any further projected increases this year depending upon market performance. If interest rates do stay low, and the cost of gold also relatively low, the support for the ownership of gold as an attractive asset versus other classes such as stocks looks set to continue.

3. Demand for Gold

The third, and perhaps most important influence identified is in the demand for gold. India became the largest overall buyer of gold last year replacing China as their demand waned. Total import levels are expected to reach the 1,000 metric ton level this year up from 900 metric tons in the previous year.
2015 saw reported record sales from Mints around the world as investors looked to diversify their portfolios against the background of challenging stock markets and this trend is expected to continue into 2016 leading to at least maintained levels of sales.

These three factors are likely to signal a stronger outlook for gold in 2016, the short term volatility is expected to give way to longer term price rises across the year.

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The value of investments can go up as well as down and the information contained within this blog is not meant to constitute financial advice. This should always be sought from an independent financial advisor before making any investment decisions.