What’s Next for Precious Metals?

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Tumbling oil prices, China’s uncertain economic future and Britain’s threat to leave the EU have created the perfect conditions for gold and other precious metals to thrive – and thrive they have. Gold fans have a right to be overly enthusiastic. After all, gold has seen a 15% gain in 2016 thus far. But how long will the rally last? What’s in store for the precious metals market overall?

The precious metals market has been following the current economic stance, and served as haven assets this year. Over the last year, silver and gold have climbed 10.8% and 16.9% respectively. Volatility in China’s markets and Japan and Europe pushing interest rates into negative territory have raised concerns about future interest rate hikes from the Fed in 2016.

The Fed’s decision will likely impact the precious metals market. After the Federal Reserve raised interest rates in December, precious metals took a serious hit as investors braced for the impact of higher benchmark interest rates. The trend over the last few years is that gold generally falls when interest rates rise.

But precious metals may continue to rise if the Fed decides not to implement as many rate hikes as originally planned. Robert Kaplan, Dallas Fed chief, recently said that the Fed’s original plan for four rate hikes this year may not go through due to growing economic fears. If rate hikes are postponed, we may see precious metals continue to rise.

Because precious metals are non-interest bearing, prices tend to drop when rates increase.

Gold’s start to the new year hasn’t been this good since 1980, a time when gold prices rallied 270% to a high of $850 an ounce thanks to intense inflation and an oil-supply shock crisis.

Prices are even higher in 2016 as investors grow increasingly concerned about a global economic slowdown. The recent downbeat news has investors nervous that we may be headed into another full-blown economic crisis, similar to what we saw in 2008. After the crisis, gold prices doubled, and values soared to an all-time high of $1,900.

Will we see the same scenario play out if an economic crisis occurs in 2016? Probably not, say gold-market watchers. The price for gold may continue to climb a little bit more, but we’re not looking at the same environment that facilitated gold’s unprecedented climb in 2011.

Some experts, like Robin Bhar, head of Societe Generale’s metals research, believes that gold is fully priced in the current global economic environment. Many are saying that the current price is about “as good as it’s going to get.”

Ben Myers

Ben began his long career in international finance and investing after graduating with a degree in Finance & Accounting. Prior to founding a financial advisory firm he worked with multi-national institutions including HSBC and Bank of Ireland. After several stints as a chief analyst at forex/binary options companies Ben still remains a keen trader and featured contributor on numerous financial sites.