(Kitco News) - Gold could be set for a strong breakout in the second half of 2015 as a year of consolidation wraps up said one European commodity analyst.
Saxo Bank is still working on their 2015 annual forecasts but Kitco News spoke with Ole Hansen, head of commodity strategist for the Danish bank to get his preliminary thoughts on the gold market for 2015.
“Major investing firms are still lukewarm on gold,” he said. “But I would be cautious about being too much on the negative bandwagon.”
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| Ole Hansen, head of commodity research at Saxo Bank |
A last minute drive in equity markets is helping to drag gold prices down and it appears the yellow metal will end the year on a softer note. However, because of the current holiday market conditions, Hansen said investors will have to wait until after the first couple of weeks in January to get a clear direction for the gold market at least in the near-term.
Hansen is slightly more optimistic on the gold market for 2015 compared to other analysts as he thinks the yellow metal could end next year around $1,250. But it won’t be a definitive move higher, at least in the first few months of the year; in the short-term, it appears prices will struggle and might even break below the 2014 lows, he said.
Hansen said that for the start of the year he could see gold prices fall to $1,100 or even $1,080 an ounce as the U.S. dollar continues to dominate the marketplace and investors adjust to normalized U.S. interest rates.
“I still think we are going to end higher by year’s end,” he said. “Most of the weakness will be seen in the first half of the year, which ties in with the weakness in energy prices.”
Hansen explained that any significant drop in gold prices will cause some supply disruptions, creating a floor for the market. Another benefit for the gold market should also come from gold-backed exchange-traded funds, which has seen lower redemptions throughout 2014, he said.
Finally, Investors shouldn’t rule out gold’s appeal as a safe-haven investment as a lot of uncertainty still remains in the marketplace, he said. In fact safe-haven demand could help the gold market in early 2015; both the Russian and European economies are teetering on the edge of recessions, he said.
Russia’s economy has been struggling with high inflation, crushing economic sanctions and weak oil prices.
Europe is still feeling some of the effects of its financial crisis as economic growth remains anemic and the central bank fights deflation. Hansen added this uncertainty could create another crisis in emerging markets, and gold would benefit as a safe-haven investment.
Another full-blown economic crisis would also impact the U.S., which is standing virtually alone as the major global engine of growth, he said..
“Although the U.S. economy is fairly independent they are still stuck with the rest of us,” he said.
With equity markets back at record highs, Hansen said that it also wouldn’t take much of a global crisis to spook investors, driving them back into gold markets.
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