Precious metals prices have been in retreat over the past 12 months, but there are reasons to suggest that the FTSE 350 producers could fare better in 2016 than the wider mining complex, although markets are likely to remain volatile throughout the period
At the start of 2016, both gold and silver prices were buoyed by increased geopolitical anxieties that prompted a step up in safe-haven buying by Asian dealers. Precious metals markets hit a positive note as mounting concerns over the Chinese economy sent prices for energy, equities and industrial inputs into a tailspin. Dealers would have taken account of worsening relations between Saudi Arabia and Iran, together with the apparent detonation of North Korea's first hydrogen bomb.
However, it's perhaps paradoxical that while a deteriorating global security outlook provides a potential spur for gold prices, it also serves to support the US dollar, which demonstrates an inverse correlation to the yellow metal. The price dynamic also reverses when insecurity gives way to stagnation; global economic weakness has resulted in continued fears of deflation, but in a deflationary environment the prices of all assets move lower.