Where Will Gold Be At The End Of 2015? Survey Results Are In.

Earlier this year, we asked readers of the Daily Pfennig® newsletter where they envisioned the price of gold to be at the end of 2015, and the results may not come as a huge surprise to most of you.

With the price of gold starting the year at about $1,200 per ounce,1 the overwhelming majority of those polled predicted a higher price at year-end. The results were spread out across the tiers when trying to determine where the price would eventually land, but the tier that garnered the most votes was the top tier, with almost a third of voters predicting gold to end the year above $1,600 per ounce.

On the flip side, only 13.82% of those responding thought that gold would end the year below $1,200. Only time will tell who ends up being right, but as we cross into May, gold is still hovering around $1,200 an ounce. That means gold will need to see a fairly large move in the price during the remainder of the year to approach what many of you think the price will be.

The Poll Results

The Case For Higher Gold
As many of you are aware, there are numerous factors that could lead to a jump in the price of gold, so I will touch on a few of them. First, central banks are continuing to add gold in massive amounts. For example, Russia just added 1 million ounces to its reserves in March,2 and China continues to not only mine large amounts, but also import it as well. Although the exact figure of how much gold China has is unavailable, there is speculation that they may have to disclose their actual holdings if they want to add the Yuan to the International Monetary Fund’s (IMF) Special Drawing Right (SDR) currency basket in the near future.3 If the number of ounces disclosed ends up being higher than previously thought, that could be a very bullish sign for the price of gold. Speaking of Russia, continued conflict in that region, and other regions around the world for that matter, could lead to higher prices. Gold is typically considered a safe haven asset, and global conflicts tend to lead to a rush into gold and thus higher prices.

The risk of a Greek default is still on the table as well, and many analysts believe a Greek default or exit from the Euro could result in a global financial crisis that will lead many to purchase gold as a hedge against fiat currency positions. And, even if that does not happen, there is so much excess liquidity in the economy now due to all the quantitative easing (QE) central banks have undertaken, which could lead to an inflationary environment and higher gold prices.

As I mentioned above, these are just a small sampling of the forces that could drive gold prices higher, but this is by no means an exhaustive list. There very well could be unforeseen events that could also be bullish for gold going forward.

The Case For Lower Gold
But, not all of you see things going splendidly for gold to finish out the year, and possibly further into the future. With the clear consensus being higher gold prices at year-end, the contrarians among us believe gold will continue the fall from its lofty high of $1,900/ounce back in 2011, to its current price of $1,200/ounce, and even further. The overall downward trend over the past four years has certainly reaffirmed those investors’ beliefs.

Many people feel that the dollar will continue to strengthen, and with the Fed possibly on the verge of raising interest rates, that would make holding gold less appealing as an alternative. With higher interest rates and a strong dollar, it will be more difficult for gold to compete against those deposits, as the shiny metal typically has a carrying cost and, for many years now, did not have interest rates to compete with.

Another reason people may feel gold is heading down is that their perception of the overall economy, both nationally and globally, is getting better. If things aren’t as bad as they seem, then the safe haven asset may not be needed as much. This could easily go the opposite direction as well, if the Fed decides to put off raising rates in June, as previously planned, then gold could see a bump in the price.

Of course, I believe gold is always needed as a component of a truly diversified portfolio to hedge against the many geo-political risks out there, but I would like to hear from you as well. If you think gold is going to continue downward, please post in the comments on our blog at DailyPfennig.com as to why you believe that to be the case.

What The Analysts Are Predicting
Well, we have heard from you, the readers, but what are the experts saying? It’s somewhat of a mixed bag of results as well, but here is a sampling of some analyst forecasts for the price of gold in the fourth quarter of 2015. The median price across 31 analysts was $1,227/ounce, with a low of $1,025 and a high of $1,500.4

• Barclays & Citigroup – $1,170
• BNP Paribas & Societe General – $1,050
• Deutsche Bank – $1,150
• TD Bank – $1,225
• RBC Capital Markets & Bank of America – $1,300
• Standard Chartered – $1,320

And, Finally, The Conclusion
So, will gold buck the trend of the past two years closing at a lower price than it started the year? Prior to 2013, gold prices closed higher than they started the year for 13 years in a row. As you can see, even among analysts who are paid to make forecasts, there is a wide range of predictions and, honestly, nobody knows what will happen, but we will see who was right and who was wrong in about seven months.

That being said, since nobody knows for certain what the future holds for any asset price, I still believe it could be a prudent investment strategy to diversify your portfolio with precious metals, regardless of the price, as it will act as a hedge against your dollar-denominated investments. And, with gold trading around $700/ounce off its high – with many projecting it to increase in the future – it could be a good time to buy before the potential run up. And, as the world’s physical supply dwindles, more people are starting to jump on board the gold diversification train, including Jim Cramer, who, believe it or not, recently recommended a 10% physical gold allocation to a portfolio.5

If you would like to take advantage of the current price of gold (or silver, platinum & palladium), you can contact our trading desk at 1.800.926.4922 and speak with one of our precious metals experts.

Until the next Daily Pfennig® edition…

Tim Smith
Vice President
EverBank World Markets, a division of EverBank