The mining newspaper for Alaska and Canada's North
The mining newspaper for Alaska and Canada's North
After six good weeks, analysts recalculate trajectory of safe-haven metal
Going into 2016, gold was selling for US$1,060 per troy ounce, and most analysts were predicting that the precious metal would at least dip below US$1,000/oz., a major psychological floor for the metal.
Over the ensuing six weeks, however, the safe haven metal climbed more than 15 percent to new highs not seen in more than a year.
With the price of gold rocketing through the US$1,200/oz. mark to US$1,253/oz. on Feb. 11, analysts are re-evaluating the precious metal's destinations for 2016.
Nothing to fear
Citigroup, among the big banks that were most bearish on gold price going into 2016, was one of the first to revise its forecast for the precious metal.
As 2015 was drawing to a close, Citigroup analysts not only thought the price of gold would dip below US$1,000 but predicted it would average a mere US$995/oz. in 2016. In a Jan. 19 report, Citigroup analysts raised their outlook to US$1,070/oz. They predict that the current rally will be tempered by a strengthening U.S. dollar later in the year.
Goldman Sachs, which contends that the current run up in gold price is being driven largely by unwarranted fear, has gold price projections largely in line with Citigroup.
Echoing the phrase that President Franklin D. Roosevelt made famous during a 1933 speech aimed to rally Americans in the grips of the Great Depression, Goldman Sachs researcher Jeff Currie outlined his outlook in a Feb. 15 report titled "Nothing to fear but fear itself."
In the report, aptly published on Presidents Day, Currie and his co-authors at Goldman Sachs say gold has been trending upwards on unfounded worries over systemic risks from weak oil prices, China and negative interest rates.
"We believe that these new fears, like past fears, are not justified," Currie penned in the report. "Systemic risks stemming from the collapse in oil and commodity prices are extremely small."
The authors of the report put the chances of a near-term U.S. recession at about 15-20 percent.
As a result, the Goldman Sachs analysts have set their three-month target for gold at US$1,100/oz. and their 12-month target is US$1,000/oz.
Seeking new heights
As Citigroup and Goldman Sachs see gold prices averaging just above US$1,000/oz. this year, other market watchers observe a more sustained upward trend developing.
In fact, Paul Ciana, a technical strategist for Bank of America Merrill Lynch, said gold has an outside chance of hitting US$1,550/oz. While trends suggest to Ciana that this hefty price is possible under ideal circumstances, his official expectations for the metal are more measured.
"Given the fact that price action has been able to break up through resistance of US$1,201 (/oz.), we've extrapolated the 200-week average to estimate an outside target of US$1,315 (/oz.)," Ciana told Kitco News on Feb. 11.
"Our measured move projection based on the height of the channel, estimates a second target of US$1,375 (/oz.)," he added.
ScotiaMocatta - part of Scotiabank Global Banking and Markets and a global leader in precious and base metals trading - shares this bullish outlook for the yellow metal.
In a Feb. 12 market update, the Canada-based bullion trader said that after four consecutive weeks of solid gains, gold has established a long-term base of US$1,048/oz. The firm has an initial target of US$1,305/oz. for the yellow metal and says US$1,376 is reasonable.
"We see support now at 1200, only a close back below 1190 would dampen our enthusiasm," Scotiabank wrote in its report.
Technical traders consider the recent gold run is due for a breather after the US$125/oz. rally over the first two weeks of February. These chartists believe that if gold can hold above US$1,192/oz. on a closing basis, this is a good sign for a continued strong bull run for the metal. They say that even a drop to US$1,145, as short-term traders take their profits, would not harm the gold price uptrend established at the start of 2016.
After hitting an intraday high of US$1,253/oz. on Feb. 11, gold fell to an overnight low of US$1,192 in overseas trading on Feb. 15, only to bounce back above US$1,200/oz. when markets re-opened after the long Presidents Day weekend in the United States.
Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.
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