Gold as with most other commodities has continued to remain in its multi-year bear cycle. On a year to date basis, Gold prices have fallen nearly 10.0% for the year, aptly reflecting the fact that threats of inflation continue to evade Central Bankers. Gold prices opened the year at $1182 and managed its seasonal rally into January this year, posting a one month gain of 8.52%. The rally in the early part of this year came about on prospects of the ECB announcing its QE program. However since February, prices continued to move lower practically erasing the January gains within the next month. Since April 2015, Gold prices remained range bound within the highs of $1200 and lows of $1150 before managing to break down lower. Gold prices then dipped over 7.95% between June and July 2015 before moving back into a range between $1175 and $1070. The next big down move in Gold came about in November with prices falling 6.8% on average.
However since February, prices continued to move lower practically erasing the January gains within the next month. Since April 2015, Gold prices remained range bound within the highs of $1200 and lows of $1150 before managing to break down lower. Gold prices then dipped over 7.95% between June and July 2015 before moving back into a range between $1175 and $1070. The next big down move in Gold came about in November with prices falling 6.8% on average.
Overall, Gold prices continued to move within the larger bearish trend since prices topped out near all-time highs of $1825 back in August 2011. For traders who had any hopes of buying Gold last year, the performance of this asset has been far from impressive and would have lost investors money on a year-to-date basis unless one was investing in Gold for the longer term horizon.
Gold in 2016, what to expect?
From a fundamental perspective, with the US Federal Reserve finally lifting off interest rates and signaling a further tightening in 2016, Gold prices have initially remained subdued albeit choppy on the smaller time frame. Traditionally, Gold is considered to be a hedge against inflation and in light of the US monetary policy tightening cycle, Gold prices should, at least, in theory, start to move higher on prospects of higher inflation. However, unlike the previous rate hike cycles, the markets are looking at the current Fed’s rate hike cycle with skepticism considering the low inflation that has overtaken the Global economy. Indeed, even New Zealand, which was the first of the developed economies to hike rates a year ago, has now brought back the benchmark interest rates back to where they were. The Fed forecasts four rate hikes in 2016, but this optimistic view could be just that.
From a technical perspective, however, the longer term Gold charts paint a bearish picture with prices continuing to decline into 2016 as well. This primarily signals the fact that the global economy could continue to remain in an era of deflation, which in part puts to question if the Federal Reserve will be able to keep up with the rate hike cycle next year.
The monthly chart below shows the Gold chart in a rather clear perspective.
Gold – Key levels to watch for in 2016
- 1233 is the major price level of interest, which has previously acted as support as well as prices consolidating around this level. So far there hasn’t been a convincing test of resistance to this level, which we suspect is likely to happen the coming year.
- 1095 is a near-term level to watch, as a close above this price could see Gold set the stage for an eventual rally to 1233 region.
- Watch the 1064 level which looks to be forming a base in the near term. The Candlestick pattern for the month of December is very likely to close out on a Doji indecision candlestick pattern which could signal a move to the upside, should we see a higher close above this month’s high of 1088.92.
- The triangle consolidation is another indication that we could see Gold snap out to the upside above 1095
To conclude, Gold continues to remain in a bearish trend and 2016 is likely to see Gold prices remain consolidated below the $1200 – $1250 price range. To the downside, Gold could be looking to hit the $1000 – $900 levels sometime in the coming year.
