News Jan 07, 2016 04:58 AM EST

Watch out for gold, oil, airlines in 2016

By Staff Writer

Three major asset classes - gold, oil and airlines- are worth watching in 2016. The three asset classes hold promising growth potential in the days to come. The lack of real growth in stock markets makes the yellow metal attractive for investors. Analysts forecast a possible rebound in oil prices, while airlines are flying high on lower fuel costs. 

Over 90 percent of demand comes from outside the US as China and India have lion's share in the bullion market. The demand for gold in China is higher than its previous record level in 2013. The total withdrawals expected to be 2,500 tons for 2015. 

Gold price was at record high of $1,900 an ounce in August 2011, when real rates were negative at three percent. If inflation is higher than treasury yield, then real rate will be negative. With the beginning of interest rate normalization process by the US Fed, the rates may continue to go up impacting the real rates, which will influence gold price as well, as reported by Forbes.

The US inflation in November was 0.5 percent. Real rates are below two percent. Europe's quantitative easing (QE) programs failed deliver desired results. Earnings per share (EPS) are not rosy. The lack of real growth in these segments makes gold investment attractive for investors. 

Analysts hold promising view on the oil price in 2016. The oil price is hovering below $40 per barrel. It's trading at $37 a barrel. The West Texas Intermediate (WTI) dropped 64 percent from its high of $105.84 on 26 June 2014. The oversupply situation contributed the most to oil price fall in addition to easing demand.

According to MarketWatch, energy analysts are bullish on oil. The oil price is at 18-month losing streak since 1986. The 45 percent drop or more after declining for 18 months, oil price tended to rise for next 12 months during the past three decades. The probability for this technical rebound is 98 percent strong, say analysts. 

There's a drop in US crude oil inventories. If this continues, oil price rise will take place. 70 percent of analysts in FactSet survey gave 'buy' ratings for nine energy stocks in S&P 500 energy sector. The nine stocks are Anadarko Petroleum, EQT Corp, Baker Huges Corp, Newfield Exploration, Halliburton corp, Pioneer Natural Resources, Marathon Petroleum, Schlumberger and Valero Energy.

The year 206 is expected to witness robust activity for the global aviation industry as oil price drop, airport upgrades, longest flight and improvement in operational profits make airlines more attractive for investors. The passenger traffic is expected to be 3.7 billion in 2016.

CNN reports that US domestic airlines reported $9.1 billion profits for July-September quarter. Analysts predict encouraging performance for global aviation sector. The number of miles per seat was down on premium long distances destinations in Asia and South America. 

However, there's no incentive for airlines for reducing air fare owing to lower fuel prices. Airlines may not pass the profits to consumers. But, American Airlines and Delta Airlines can compete with budget airlines in the lower fuel price regime.

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