lthough I am not publishing a formal annual outlook this year, I have made a number of smaller forecasts in the media over the last few weeks, which I am collecting in blogs for your interest.
USD Outlook for Kitco News
1) I think the USD is peaking near 100.00 and that its uptrend will correct downward in 2016. IMO, the 20% rally in USD over the last year or so has priced in a more aggressive campaign of interest rate hikes that we are likely to actually see and also priced in that other central banks would remain as dovish as they were in 2015. I think the street will be wrong on both counts.
2) The big fundamental drivers for USD in the coming year are likely to be the Fed’s glide path higher, combined with what the ECB and Bank of Japan do. Last cycle the fed raised interest rates by 0.25% for about a dozen meetings in a row which would suggest 8 hikes in 2015. Recent Fed comments suggest its more likely to be 2-4 and I am thinking 3 (March June and December, skipping September to stay out of the election campaign)
USD peaked earlier this month about the same time that EUR bottomed, when the ECB didn't go as dovish as the street had thought they would. Last week the Bank of Japan reshuffled its stimulus but didn’t increase. I think in general the latest wave of central bank has stimulus and while it could take years to unwind, the pendulum is going to start swinging back the other way in 2016 I think. We probably won’t see much in the way of new stimulus this year except maybe in China.
3) I think I covered the headwinds for USD in the last section. If I’m wrong it would be more stimulus from other central banks (which would weaken their currencies and strengthen USD) or if the Fed were to be more aggressive than I think (which I doubt)
4) USD should outperform relative to CNY this year. China’s government is changing its peg to a basket of currencies not just USD any more. CNY has followed USD sharply higher against EUR, GBP JPY and other currencies which has been one of the factors dragging on its economy. CNY will probably drift back in 2016 until it finds a more appropriate level against more than one currency which could see it weaken relative to USD unless the greenback drops as well.
USD did particularly well in 2015 against resource currencies like CAD, NOK, AUD and NZD. How USD performs against them this year depends on what happens with commodity prices. I think metals and agriculture could bounce back (which would help AUD And NZD), but I think energy gains will be limited to short term trading bounces, so CAD and NOK could still drag.
I think USD will underperform relative to EUR, JPY and GBP this year as traders realize no more stimulus is likely to be forthcoming and the Bank of England moves toward its own rate increases.
5) I think gold is close to a significant bottom and could rebound through 2016 as USD falters. I had been thinking it could retest $1,000/oz but the longer it takes the less likely it may actually happen.
6) The recent failure to hold above 100.00 has completed a double top peak and USD could trend lower here.
Basing my forecasts on Fibonacci retracements of the rally from its mid-2015 liftoff point I think we could see the USD index reach
3 months – 95.40 (23% retracement)
6 months – 92.35 (38% retracement)
12 months - 89.80 (50% retracement)
Gold outlook for Kitco News
For 2016, I think gold will bounce back strongly. I sent over comments to Kira earlier outlining my bearish outlook for USD (Fed raising rates, BOE likely to follow suit, ECB and BOJ not increasing stimulus any further, pendulum starting to go back the other way from extreme dovishness back toward neutrality.)
I think by the end of 2016 gold can rebound back into the $1,182 to $1,224 range around my $1,200 objective which are the 38% and 50% retracements of the decline from early 2014 to the recent low.
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