First up, Gold.
It’s been a great year so far for gold, with a spectacular gain of almost 25% in the first half of the year. But many think that the shine might be gone from the yellow metal, and declining prices could be a feature of the fourth quarter.
The continued slowdown in China is likely to weigh heavy on the metals markets, after all China is the largest consumer and producer of gold globally. In fact, the Chinese market is responsible for 5% of global gold jewelry demand, not to mention the many technological applications for the metal.
RBC Capital Markets went on the record to predict that we will see weakening demand in China, and that will trickle out to low prices. The investment bank even suggested that we could see prices fall to $1,258 per ounce by the end of the year.
To quote their report, RBC Capital Markets said that “[o]verall, we think the Chinese gold market will continue to grow, but lower net demand and continued supply growth means that the demand shortfall should narrow this year... Thus, feeding the dragon should be easier this year than in those past.”
It sometimes seems like you can find any old prediction with oil. Some commentators are happy to peg the price predictions at around $100, others want to pitch in at $10. Amidst the confusion, however, themedian price predicted by analysts is around $46, and that’s around the ball park of where it has remained recently.
Jay Hatfield, co-founder and President of Infrastructure Capital Advisors (InfraCap) and portfolio manager of the InfraCap MLP ETF (AMZA0), thinks that we could see a price recovery but not until next year. “Global supply and demand are in rough balance, but there is a significant overhang of excess inventory. In addition, when oil prices ran to $50 per barrel, US producers raised equity capital and put on additional rigs, which helped to cap prices at the $50 level. We are headed into the shoulder season for demand for energy, so we expect prices to test the lower end of our range over the next couple of months.
“We are forecasting that oil prices remain stable in 2016 in the $40-50 range for the reasons discussed above, and that prices rally to the $50-70 range in 2017 as global offshore production starts to decline in response to an enormous cut back in capital expenditures by the Super Major oil companies.”
The only thing that could alter Hatfield’s predictions is if OPEC come to the rescue of the markets. At the beginning of September, OPEC member Saudi Arabia suggested that they might be willing to support prices by putting a supply limit, but it is yet to be seen if this will come to fruition.
The S&P ended August in the red, after a weakness in energy shares (see above). But over all it has been a positive year. In fact, the negative end to August put pay to a 5-month winning streak for the US market.
The dollar is also up, which is helping to boost the spending power of the US.Jeff Reeves, executive editor and analyst at InvestorPlace.com weighed in on the matter. “For Q4, I think we are going to see a strong shopping season despite the bleak outlook for many retailers on a corporate level. Consumer spending metrics have been very robust, thanks both to low energy prices as well as continued strength in jobs and housing.”
So which way is it going to go from here? Well, that all depends on one thing – the Federal Reserve and whether or not they will raise interest rates in 2016.
The Fed has already backed off on four previous hikes, but there is the growing possibility that another raise is imminent. And that will have knock-on effects for not just the S&P, but also oil and gold.
Some say it’ll be here by the end of September; other’s think the Fed will hold off until they meet again in December. But there is always the possibility that is could be delayed by some external event, say a Presidential Election, and not happen until 2017.
Regardless of what happens with the Fed, the fourth quarter of 2016 will provide a final hurrah for the markets this year, as we work our way toward Christmas. We’ll be back to update about Q3 earnings as soon as they start to trickle through, but for now hold tight – dependent on your markets, it might be a bumpy ride!