2016 will be an important year for gold. Will the price of gold fall for the 4^th year in a row or will there be an end to this brutal bear market. The good news is, you only need to watch 2 signs to know the answer.

After all the market turmoil you would have thought gold would have performed better. With a modest gain gold performs better than stocks, but many gold bugs surely hoped to see a significant increase under these conditions.

While stock investors are running to the exit, gold bugs are still scare to find. There are the 4 most important reasons gold didn’t skyrocket (yet):

• The US Dollar kept up pretty good
• Number of shorts on gold stays high
• Deep rooted pessimism isn’t erased within 1 little crisis
• Obligated selling by big investors

Gold only shines half because most analysts still see gold drop under $1.000. This means they will keep their short positions as long as possible and they will sell gold when margin calls forces them. Investors aren’t seeing long term opportunities.

Gold still has 2 enemies

Much will depend on the US Dollar and inflation. A rising US Dollar without inflation is a worst case scenario for gold and will inevitably lead to a 4^th year loss. In the most other scenario’s there is a big chance we’ll see some green numbers this year.

Gold fell to the lowest level in 5.5 years when the Federal Reserve hiked rates for the first time in 9 years. The rate hikes are not going to be the problem for gold, it’s the pace that will determine whether the US Dollar will get any stronger or not.

A stronger US Dollar is not good news. Traditionally the dollar has always weakened, even significantly, after the first rate hike of a new rate cycle but most of it will depend on the pace Janet Yellen is going to hike.

This brings us to the second important sign you have to follow: inflation. Like the US dollar depends on the rate hike cycle, inflation is going to depend on the price of oil. When oil prices are up y-o-y there will be a positive effect on inflation.

Given the current developments in the financial markets, there is not much reason to be euphoric for a higher gold price in 2016. That’s why most analysts expect only an increase in the second half of the year.

While there are still some uncertainties that will keep gold from their best performance in many years, the downside risk seems to be limited while the upside potential is increasing.