(Kitco News) - Negative sentiment in the gold market continues to grow -- amidst its lackluster performance and inability to hold gains above $1,100 -- with another bank downgrading its forecasts for the year.
In a report released Thursday morning, Natixis analysts said that they now expect gold to drop below $1,000 an ounce after the Federal Reserve raises interest rates in September, the first hike in nine years. The bank added that it now see gold averaging $1,100 an ounce for the year and expect prices to average $950 an ounce in 2016.
“To take advantage of this potential drop in the price of gold in the months following September, we suggest buying a 3-months put at $1,000/oz and selling a put at $900/oz,” the report said.
In March the French bank said in its base-case scenario, analysts expect prices to average $1,150 an ounce this year and $1,055 an ounce in 2016. However, even in March, the bank said that it couldn’t rule out continued weakness in the market, warning that in its worst-case scenario, prices could average $1,050 an ounce this year and $950 an ounce next year.
It is not surprising Natixis has officially lowered its target for the gold market this year. In recent interviews with Kitco News, precious metals analyst and author of the bank’s latest report, Bernard Dahdah, said that he doesn’t see much support for the yellow metal, adding that he wouldn’t rule out a drop below $1,000 an ounce.
The bank noted that impending interest rates will have the biggest impact on the gold market this year, but Dahdah said other factors that will also weigh on gold. The report warned that physically backed exchange-traded funds have once again become a source of supply with outflows increasing by 68 tonnes in the last two weeks alone.
One surprising segment that could hurt gold this year is the official sector, as Natixis pointed out that central-bank gold purchases have slowed in the past two years.
“The most recent data released by the IMF indicates that in the first five months of the year central banks were actually net sellers; holdings having dropped by 72 tonnes,” the report said.
India, despite year-over-year improvements in gold imports so far this year, still continues to see lackluster demand compared to historical norms, the report said.
“In the first four months of the year, gold imports were at 189 tonnes compared with a pre-2014 average of 400 tonnes for the same period,” wrote Dahdah.
China, considered to be the last pillar of support for the gold market, is also seeing a reduced impact in the marketplace. Dahdah noted that Chinese investors have stayed away from the gold market as prices have been fairly range-bound.
“The latest data indicates that imports into the country from Hong-Kong have dropped by 40% yoy to 22 tonnes. According to GFMS, during the second quarter of the year, Chinese jewelry fabrication dropped by 23% yoy and retail investment by 25% yoy,” he said.
Natixis joins a growing list of financial firms that are now expecting to see gold prices drop below $1,000 including Goldman Sachs, ABN Ambro and Deutsche Bank.