(Kitco News) - Natixis sees gold prices averaging $990 an ounce in 2016 on expectations for higher U.S. interest rates and strength in the U.S. dollar, the French bank said in a report released Friday.
U.S. interest rates are likely to be the single biggest driver of gold next year, Natixis said.
“The U.S. economy is growing and is expected to continue to do so into 2016-17,” Natixis said. “A strengthening dollar and higher yields could continue to contribute to the lowering of gold prices, especially considering the fact that rising interest rates increase the opportunity cost of holding gold. Loose monetary policies in Europe and Japan will help weaken these currencies versus the dollar, which will further strengthen the greenback.”
Gold, like many other commodities, tends to be benefit when the U.S. dollar sags but conversely be hurt by dollar strength.
The firm looks for demand from central banks and China to be weaker than past years.
“On a more supportive note for gold, Indian demand for the metal is expected to rise next year as the economy continues along its growth path,” Natixis said. “Indian demand for gold is positively correlated to higher GDP, spending power and the monsoon.”
For 2017, Natixis said the average gold price could rise back above $1,000 again. “Prices are expected to rise as mine supply starts dropping due to strong cuts in capex over the previous five years,” the firm said.
Natixis looks for silver to follow gold in reaction to the U.S. macroeconomic picture.
“With demand for silver from the electronics industry only expected to rise slowly, we don’t expect this level of demand to compensate for the drop in investment demand,” Natixis said. “As such, we see silver prices averaging $12.80/oz in 2016 and $13.40/oz in 2017.”
Natixis listed a 2016 platinum forecast of $1,120 an ounce and a palladium forecast of $715.
Analysts said they are most bullish on platinum, assuming a fundamental shift in consumer preference toward gasoline-powered cars does not take place. Platinum is used for auto catalysts in diesel-powered vehicles, thus was hurt by the Volkswagen emissions scandal, while gasoline-powered cars use palladium.
“Although we think that generally there will be a tendency for a drop in diesel automobile demand, we still believe prices are well below where they should be,” Natixis said.
The company cited rising auto demand in Europe, the second-largest platinum consumer, as well as increased efforts by China to tighten emissions rules. Further, producers are starting to shut down unprofitable platinum production and, with gold trading at a hefty premium over platinum, Chinese jewelry demand for the latter should rise.
“For palladium, we expect that in the next two years we will see growth in automobile demand from countries that are heavy users of gasoline, although perhaps at slower pace than in previous year if the Russian and Brazilian economies remain weak,” Natixis said.
Also, Chinese demand is expected to pick up again after this was dented in 2015 by the crash in the country’s stock market, Natixis said.