Gold Monthly Fundamental Forecast – August 2016

Gold closed an active month to trade at 1358.05 with a gain of 1.6% on a month to month basis. Gold is up 28% on a year to date basis.  Gold has regained its luster and is forecast to average $1,260 per troy ounce in 2016 and $1,320 in 2017 on the back of increased demand for safe haven assets following the Brexit vote on June 23rd. Heightened uncertainty regarding the future of the European Union and the potential for subsequent ‘-exit’ referenda across the continent will support a healthy appetite for bullion as a hedge against further political instability.

The Bank of Japan announced a near doubling of its exchange trade funds (ETFs) purchases to an annual JPY6.0trn from JPY3.3trn, but decided against more radical measures and there was no move to push interest rates on central bank deposits further into negative territory. The target increase in the monetary base was also held at JPY80trn per annum. The actions increased speculation that the bank had acted on political pressure rather than conviction over the stimulus program. The bank will also hold a thorough policy assessment at the next review, increasing speculation over a radical overhaul.

Gold spiked lower in an immediate reaction to the decision before recovery ground equally quickly as the dollar also more than surrendered the initial move higher. There were overall expectations that global monetary policy would stay very loose, which helped underpin demand for precious metals, as the dollar remained generally under pressure.

Gold’s latest rally may have something to do with the concerns raised about the world economy. Although the Fed made it clear that the American economy is indeed getting better, its statement has left room for speculation on the outcome of its next meeting.

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