Gold has had its most bullish start to a year since 2008 this year, mainly due to a surge in Exchange Traded Fund inflows, causing consultancy Metals Focus to forecast a 2016 high of $1,350/oz in the fourth quarter, it said in its Gold Focus 2016 report Thursday.
Gold's more than $200 rise during the first two months of this year signaled the end of the multi-year bear market, MF said.
"While a further correction from the high point [year-to-date] of $1,285/oz is possible during the second quarter, this is expected to mark only a temporary setback before prices increase again in the third and, especially, fourth quarters," the report said.
The London Bullion Market Association Gold Price settled Wednesday afternoon at $1,236.25/oz, from a morning price of $1,238.20/oz.
The downside of the dollar gold price rise has been a drying up of demand in key physical markets, including India, China, Turkey, and Dubai.
Still, MF says it believes that soon these key markets will have to react and in turn set a "higher price floor" in 2016.
"In 2015, this floor -- as provided by Asian jewelery and bar demand -- ratcheted down, at least in US dollar terms. In contrast, this year a somewhat stronger tone to jewelery and bar demand, especially in India, should see this floor start to creep higher. This may not be immediately apparent as physical markets have yet to fully adjust to current gold price levels," the report said.
MF said it believes renewed investor interest in the West, driven by a deteriorating outlook for the global economy led by a slowing in China and conflicting data out of the US, will not "melt away" during 2016, and in fact strengthen.
On the supply side the consultancy sees the market in balance in 2016.
Looking directly at physical demand in the world's two largest consuming nations China and India, MF is bullish for 2016.
"China and India are both forecast to enjoy double-digit increases [in 2016]. The former is mainly due to a continued desire by local investors to hold hard assets, as they fear further yuan depreciation. The latter reflects increasingly bullish price expectations, resulting in investors chasing the price higher," the report read.
For the time being however, physical demand is lacking.
On Wednesday the premium over London spot was heard around $1.50/oz in China while in India the market was assessed by Platts at a discount of $25/oz.
