Prices are forecast to decline a further 13 per cent in 2016 to average $1011 per ounce, reflecting expectations of further US interest rate increases in 2016,according to a report by Australia’s Department of Industry, Innovation and Science.
Increases in physical demand for gold fuelled by lower prices especially in the form of jewellery purchases in large and emerging markets such as India and China are unlikely to be sufficient to offset reduced investment demand and limit price declines over the short term.
Gold prices are estimated to decrease 8 per cent in 2015 relative to 2014 and average US$1160 per ounce. LBMA gold prices declined substantially in the second half of 2015, falling as low as US$1054 per ounce in early December—the lowest price recorded since 2009.
The fall in prices largely reflected the expectation that the US Federal Reserve would increase interest rates, which they did when they met on 16 December. An increase in US interest rates provides a positive signal about the health of the US economy to investors, and encourages investment in US dollar denominated bonds and stocks instead of gold.