NEW YORK (Kitco News) -- With the historic U.S. interest rate hike now in the rear-view mirror, one senior technical analyst is shifting his focus to the coming year, when he expects gold and silver prices to stabilize.
As part of Kitco News' Outlook series, Kitco's Jim Wyckoff shares his forecasts for gold and silver prices, which he expects to rebound in the later part of 2016, led mainly by a recovery in crude oil prices.
"We may have some more downside price pressure in the first quarter, but I suspect as we move into the summer 2016, we're going to see a stabilization in prices," he told Kitco News Thursday.
According to Wyckoff, oil will continue to be under pressure in the coming weeks and months, so much so that it could hit $33 a barrel.
"I suspect we will reach that area in the next few weeks or months, then I think crude oil prices will stabilize and trade sideways to higher," he said. "And when that happens, much of the raw commodities sector, including gold and silver, will do the same thing."
The crude oil market has been under significant pressure over the past year, particularly in the second half. Year-to-date, West Texas Intermediate crude oil prices have fallen almost 42%, with the biggest selloff seen after June. Nymex WTI January crude futures were last quoted down at $34.87 a barrel. This year's selloff also comes after the 2014 selloff, which saw crude fall 33% from around $85 a barrel to $60 a barrel.
Wyckoff also noted that gold is technically oversold and sentiment among traders is extremely bearish, which could signal that a low is not far off. However, he does see price deflation as a major threat for raw commodities in 2016.
"We do see some worrisome signals coming out of the European Union, coming out of China about stagnant consumer and producer prices, and slowing economic growth in those regions," he said. "That could stall commodity price inflation, which would be bearish for gold. There's nothing more bearish for the raw commodities sector than the specter of price deflation," he added.
Looking at technical levels, Wyckoff expects the first quarter of 2016 to be rough on gold prices, with the metal dipping to the $1,000 psychological support level.
"I would not be surprised, if we did hit that level, for prices to dip just a bit below. But, I don't see strong downside potential below the $1,000 level in gold prices," he said.
Gold managed to settle higher after the big Fed day, but has since backed down. February Comex gold futures were last quoted down $23.10 at $1,053.70 an ounce.
For silver, Wyckoff said he could see prices drop by another $1 to $2 an ounce before it starts to recover.
"On the upside for silver, I think you're going to have to get prices back above $16 or $17 to improve that longer term chart posture in the silver market to suggest that better times lie ahead," he said.
March comex silver futures continue to be under pressure, and were last quoted down 3.53% at $13.745 an ounce.