It has been said that every commodity needs a narrative, and precious metals are no exception. The narrative is the vehicle which hopefully drives confidence and so pushes the price up or down. This market psychology is a staple of economic life.
So what is the back drop to gold and silvers narrative at present? Well, already this year we have seen the Chinese stock market closed twice in the first month of 2016. The FTSE too has tumbled below 6,000 points and China's slow down continues along with the falling price of oil. And the IMF have lowered their sights for economic growth this year. So true to form, with all the political and economic uncertainty, gold has had a good rally at the beginning of 2016. It is always seen as a haven for cash. It might not give you a yield like a bond. But it does mean you own your wealth in physical precious metals that you importantly, can hold onto while all around you is uncertain. So far this year gold has performed strongly and is up over £40 an ounce currently trading at £771.01, Silver £9.92 an ounce and Platinum £579.09 an ounce. Silver too is enjoying similar fortunes with a 4% increase this week.
But what are the key players saying?
Well UBS are expecting gold to bottom in 2016 and then benefit from safe haven buying before a new bear market in 2017. With huge instability in the markets they are telling investors to cut back their exposure on indices and pile (my word not theirs) into gold, as they expect this volatility to continue throughout 2016.
Here is an extract from the 39-page report "Technical Analysis: Technical Outlook 2016" by equity salesmen Michael Riesner and Marc Müller at UBS.
Gold has been trading in a cyclical bear market since 2011.
In 2016, we expect gold and gold mines moving into an eight-year cycle bottom as the basis for the next multi-year bull market.
Initially, we see gold profiting as a safe haven and as of 2017, gold could profit from the US dollar moving in a major top and starting a bear market.
All this volatility in the bearish commodity markets is making many credit analysts think we are on the precipice of another 2008 Lehman Brothers bankruptcy. On the back of this both gold and silver are riding high with Citigroup raising its gold forecast for 2016 by 7.5%. Which logically can only make one think there will be a spike in the price of precious metals at some point. Well at least that's the narrative here anyway!
If this has been of any interest or help please share. As always your comments are most welcome!
UBS "Technical Analysis: Technical Outlook 2016"