- U.S. borrowing costs at 1.5% by end of next year, Gan says
- Holdings in exchange-traded products to slide further
It’s all downhill for gold next year -- at least according to the top ranked precious metals forecaster.
Bullion will drop each quarter to $950 an ounce by the end of 2016, said Barnabas Gan, an economist at Oversea-Chinese Banking Corp., keeping to a forecast he made in October. The bearish outlook reflects an improving U.S. economy and an increase in borrowing costs to 1.5 percent by the end of next year after an initial rise of 25 basis points at the Federal Open Market Committee meeting on Dec. 15-16, he told reporters in Singapore on Thursday.
“With the improving growth sentiment and higher interest rates in the U.S., the love for yield and the love for risk-taking is going to dominate,” Gan said in an interview. “Gold being a safe haven, there’s little reason as to why you should put money into assets that yield nothing.”
Gold is heading for a third annual decline, the longest slump since 2000, as the Federal Reserve prepares to raise rates for the first time in almost a decade. While Fed Chair Janet Yellen has assured a gradual pace of liftoff, she told lawmakers last week a rate increase at the meeting this month was a “live option” given that the economy is “doing well,” and a move from the current near-zero level is widely expected.
Gan’s prediction puts gold at the end of 2016 about 12 percent below prices now of $1,075. He said among risks to his forecasts were the potential for weaker than expected growth in China and uncertainty over the global economy which could lift rates to $1,200 as investors seek haven assets. Singapore’s OCBC was the most-accurate precious metals forecaster in the third quarter, according to rankings complied by Bloomberg.
“At least for now the paper demand is going to stay lackluster,” Gan said, adding that holdings in bullion-backed exchange-traded funds will decline further in 2016. Investors have cut assets by more than 8 percent this year to the lowest since February 2009.