Gold looks set for a huge upswing during 2016 and we can see a couple of solid reasons as to why.
1. Global Economic and Geopolitical Instability
The global economy is in a volatile period and there are worrying signs that this could be the beginning of another financial crisis. The world’s economy is slowing down, led by declining economic growth rates, a slump in commodity prices and rising uncertainty over which way things could go.
China was the global economic powerhouse with a growing demand for commodities in particular. However, last August’s Chinese stock market crisis, when combined with the slowdown in economic growth data coming out of Beijing, means that the slowdown in China looks to be around for a long time to come.
But China is not the only major economy in trouble. The International Monetary Fund (IMF) has continually been reducing its economic forecast on global growth rates and if they were reduced further it would not be a surprise to anybody.
On top of this we are currently seeing heightened geopolitical risks with rising tensions seen in the Middle East. Relations between Iran and Saudi Arabia have soured following the latter’s execution of a prominent Shi’ite cleric. The conflict in Syria rumbles on and recent terrorist attacks on Paris shocked the world. This could impact on the refugee crisis in Europe and also create more tension between Russia and the West.
At the time of writing, we have just had reports that North Korea has tested a miniaturised bomb, stoking tensions with the US and its allies, Japan and South Korea. This weighed on Japanese and South Korean stocks as investors rushed in to safe haven assets such as Gold.
When economic and geopolitical uncertainty hits and investors are not sure how far south the markets could fall, safe havens such as Gold will likely flourish. This has been the case for centuries.
When the stability of other asset classes is put in doubt, investors buy in to Gold and this is another reason that Gold prices are about to surge.
2. Technical Reversal Pattern Forming
If the fundamental reasons discussed so far are not enough to convince you that the price of Gold is due to reverse in 2016 then perhaps a look at the chart might.
The monthly chart for Gold (below) shows that a technical wedge reversal pattern has been forming and we are currently approaching a key level in the market where the precious metal has previously found support at the $1039.75 area. A bounce from this level, and a break to the upside of our technical wedge pattern, gives us a decent target to the upside for Gold, with our sights set on the $1429 area and a favourable risk to reward trade.