Analysts give mixed views on whether the fear-trade rally that started the year for gold will hold up.

“Gold's strength is probably going to be relatively short term, but there is an upside risk to gold, if the view that China is going to pull the whole world into recession becomes stronger,” Citigroup metals strategist David Wilson said. “But if the U.S. and Europe continue to grow, gold will go weaker ... Chinese stock markets had got massively overinflated because a lot of money piled into it and now people come back to reality.”

Investors are being driven “more by emotion and panic” rather than market fundamentals, according to David Mann, the chief economist for Asia at Standard Chartered Plc in Singapore.

“With equity markets tumbling, escalating tensions between a Saudi-led Sunni bloc against Iran, ongoing hostilities in Syria, North Korea testing what it claims to be a hydrogen bomb, the once precious yellow metal is looking perky,” said Brown Brothers Harriman in a note posted by Chris Dieterich of Barron’s. “If gold is carving out a bottom, then a retracement of the drop since the middle of October should be anticipated.”   Key retracement levels currently are $1,101, $1,119, and $1,136 (38.2%, 50%, and 61.8% respectively).

Two equities salesmen at UBS sent clients a 37-page note urging them to dump stocks and buy gold.  Michael Riesner and Marc Müller told clients: “Gold has been trading in a cyclical bear market since 2011. In 2016, we expect gold and gold mines moving into an eight-year cycle bottom as the basis for the next multi-year bull market.  Initially, we see gold profiting as a safe haven and as of 2017, gold could profit from the U.S. dollar moving in a major top and starting a bear market. Gold is seen as a haven for cash. It doesn't pay a coupon like a bond, and it doesn't pay a dividend from a stock, but it does mean you own ounces in a physical precious metal that you can hold onto.”

UBS expects the S&P500 to top out in the second quarter and then begin to dive into a bear market that could deepen to a 20%-30% correction later in the year or early next year.  “The comeback of volatility was the title of our 2015 strategy. Last year’s rise in volatility was in our view just the beginning for a dramatic rise in cross-asset volatility over the next few years,” the UBS note said.

RBC Capital Markets sees gold in a range from $1,050 to $1,200 for the year in turbulent trading. “We see fundamental demand, from both emerging market participants buying on weakness and regular central bank purchases, providing support for gold prices. We expect gold and silver prices to continue to be volatile over the next 12 months as the market assesses the impact of this FOMC rate hike cycle.”

Gold’s failure to rally significantly from several financial and geopolitical headline shocks last year prompted a number of analysts to suggest that gold has forfeited its role as a safe haven asset in times of woe.  Not so, says Investec: “We note, given global market turmoil, that gold is increasingly regaining its status as a safe haven.”  I couldn’t agree more!

CHINA BANK CONTINUES TO ADD GOLD

The People’s Bank of China added more gold to its reserves in December, buying another 19 tonnes.  That brings China’s total gold stash up to 1,762.3 tonnes.  China is the world’s fifth largest gold owner, behind the U.S., Germany, Italy, and France.

China’s overall gold demand in 2015, including consumer and industrial demand as well as official purchases, reached 2,555 tonnes by Christmas Day, consuming the equivalent of 80% of all global gold production.

“At these sorts of price levels, combined with China’s determination to both diversify its foreign reserves and also to try and promote the yuan as a rival world currency to the U.S. dollar, I expect China will maintain its program of gold buying for a considerable period of time,” said an email from Gavin Wendt, founding director at MineLife Pty in Sydney.

In another development to make it even easier to import gold, Reuters reported on comments from China’s General Administration of Customs indicating that gold imported into China for industrial use will not require a central bank permit from the start of 2016.  Industrial use includes the processing of gold in making watches and coins for example.

Mike Fuljenz is a member of the Newsmax Finance Brain Trust.  Click Here to read more of his articles.  He is also the editor of the NLG award winning Michael Fuljenz Metals Market Weekly Report.  Discover more by Clicking Here Now.