Gold Price Forecast For 2015: Positive Gold Outlook Ahead

March 13, 2015

The gold outlook for 2015 has, so far, been dull, but considering external factors, things could turn around for gold prices in 2015.

Economic Drivers Affecting Gold Price Forecast for 2015

Between 2001 and 2011, the price of gold soared more than 600% to $1,923 per ounce. Despite the poor performance of gold since then (trading near $1,200), economic and supply/demand factors suggest a bullish gold price forecast for 2015, with a turnaround for gold prices expected in the second half of the year and into 2016.

The decline in gold prices from $1,900 an ounce to the $1,200 level is a result of improving economic indicators, low interest rates, and investors turning their attention to better-performing assets—namely the stock market. Since the beginning of 2012, the price of gold has fallen 25%. During the same timeframe, the S&P 500 has climbed 67%.

But there is a seeming disconnect between the stock market and gold prices. On one hand, the stock market is moving higher on historically high valuations. At the same time, demand for gold is increasing while supply is static; but for some reason, gold prices remain dull.

But all of that could change…

Stock Market Correction Coming; Gold Outlook in 2015 to Turn Positive?

First, the stock market; it’s sorely overvalued and investors are far too optimistic. For example, the CAPE ratio of the S&P 500 is a price-to-earnings (P/E) ratio adjusted for inflation and cycles. The ratio currently stands at 27.85; that means that for every $1.00 of earnings a company makes, investors are willing to pay $27.85. (Source: Yale University, Department of Economics web site, last accessed March 10, 2015.)

“Despite the poor performance of gold since 2011, economic and supply/demand factors suggest a bullish gold price forecast for 2015.”

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The last time the ratio was near this level was in late 1999, the high-flying days before the dot com bubble burst. Comparing the current valuation of the S&P 500 to its historical average of 16.59, the stock market is currently overvalued by 68%. A correction is coming. And it’s not going to be pretty.

Remember, stocks are only as strong as the economy that supports them. And while many point to the resilience of the U.S. economy, it’s not as strong as it appears. The unemployment rate might be at 5.7%, but the underemployment rate is at 11.3%. The 2014 gross domestic product (GDP) growth of 2.4% was slightly better than 2.2% in 2013 and 2.3% in 2012, but it’s still way below the country’s historic growth rate of 3.3%. What are also discouraging are stagnant wages and high personal debt levels.

That doesn’t mean the Federal Reserve isn’t going to hike interest rates in the second half of 2015; it will, dousing the fuel that has been sending the stock market higher. But for the gold outlook, this is positive. Higher interest rates are bearish for gold because they give investors a reason to move their investment dollar into financial vehicles that produce a yield.

Gold has no yield. High interest rates also suggest the economy is doing well and investors, for the most part, don’t see much of a reason to hedge economic uncertainty with gold if the economy is doing well.

Physical Demand for Gold

By all accounts, the demand for gold remained solid in 2014. Admittedly, gold sales in 2014 were never going to be as bright compared to 2013, which showed phenomenal growth. Still, some interesting numbers surfaced.

Central banks purchased 477.5 tonnes of gold in 2014, a 17% increase over the previous year and the biggest increase in 50 years. This also marks the fifth year in a row that central banks have been net importers of gold. (Source: World Gold Council, February 12, 2015.)

On the technology side, gold demand fell to 389 tonnes, the lowest level since 2003. This is hardly a surprise and is a result of sluggish economic conditions. It’s also a pattern that will continue into 2015. That said, moribund economic growth is also one reason why investors could move back into gold.

Jewelry sales make up about half of worldwide demand for gold. Of that, roughly 56% comes from India and China. Full-year jewelry sales figures were (as expected) down year-over-year at 2,152.9 tonnes, but still above the five-year average of 2,053.0 tonnes.

Specifically, demand from India was up eight percent year-over-year at 662 tonnes, and the highest level since it began tracking sales in 1995. Interestingly, for the majority of 2014, the Indian government imposed restrictions on gold imports. With restrictions eased in 2015, there’s a really good chance demand for gold jewelry will hit another record.

Amidst a backdrop of a soaring stock market, “encouraging” economic data, and record mine production, the total supply of gold was flat at 4,278.2 tonnes in 2014. All it would take is a major event (economic, geopolitical, etc.) for gold demand to soar, changing the gold prediction in 2015 to positive.

These factors don’t even take into consideration the fact that the U.S. Department of Justice is investigating whether or not the world’s biggest banks have been manipulating silver and gold prices.

Gold Outlook for 2015

Because of all of these factors, I predict gold prices will be considerably higher next year—and will continue to trend higher in the years ahead.

With the stock markets soaring and the economy chugging along, gold has taken a back seat. All it will take for gold to come to the forefront is a good dose of reality. By that, I mean a well-deserved correction on Wall Street; this will lead to a reversal of funds out of stocks and back into gold.

Unexpected economic challenges out of China, Japan, Russia, and the eurozone could also send investors back into gold. So, too, could rising geopolitical tensions from the Middle East, Russia/Ukraine, terrorist groups, and wild cards like North Korea and Nigeria.

It’s the perfect storm for an overvalued stock market and underperforming gold prices. While many investors have turned their back on gold, the fact of the matter is that when it comes to predicting gold prices in 2015…things are just starting to get interesting.

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John Whitefoot is an editor at Lombardi Financial, specializing in low-priced investment opportunities. He contributes to Lombardi’s Profit Confidential and Daily Gains Letter newsletters. John has been a financial writer since the late 1990s and has written on everything from penny stocks to blue chip stocks to the broader issues that affect the stock market. John has profiled more than 1,000 low-priced stocks, researching and covering numerous sectors including health care, media, manufacturing, IT, education, hospitality, natural resources and retail.

Gold is using for heat dissipation in some cars.

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