Ask any investor what they think of 2016 so far and their answer will probably be rather downbeat. That’s because the last 11 or so weeks have been among the most volatile in recent years, with the FTSE 100 being akin to a rollercoaster ride and the outlook for the global economy being highly uncertain.
However, the FTSE 100 is flat year-to-date. That’s not a bad result when you consider that there’s a very long way to go until the end of the year and therefore plenty of time for the index to record capital gains. Furthermore, the price of oil has risen by 37% and the price of gold is up by 17%, thereby showing that while 2014 and 2015 were difficult years for the commodity sector, 2016 could be shaping up to be one of the best in a very long time.
Gold standard
Of course, the price of gold has responded positively to the high degree of uncertainty that’s present across the globe. With the prospects for China and Europe in particular being rather uncertain, investors have seemingly flocked to what they view as a relatively safe asset in gold. And with the Federal Reserve backtracking on its rather ambitious plans for interest rate rises (two are now planned for 2016), the price of gold could realistically continue to rise in the coming months.
Similarly, the price of oil is now standing at around $40 per barrel and could rise further during the remainder of the year. Eventually, supply is likely to be cut since the current level is uneconomic for a number of producers. And with demand set to rise as the global economy continues to be heavily reliant on fossil fuels for its energy mix, the gains made in recent weeks could be just the beginning.
Even for the FTSE 100 there’s reason for great optimism. It trades on a relatively low price-to-earnings (P/E) ratio of around 13 and with it yielding just under 4%, continues to offer clear upside potential. Furthermore, with the US economy continuing to perform well and the long-term prospects for China being bright, there’s the scope for capital gains through the rest of the year to add to the higher-than-average yield that the UK’s main index currently offers.
While there’s likely to be more volatility over the coming months, 2016 could prove to be a superb year for oil, gold and other asset prices. Although the rapid rate of growth seen in oil and gold since the turn of the year is unlikely to continue at the same pace, for long-term investors seeking out oil and gas producers as well as precious metal miners, there’s still much to be optimistic about. Having got off to a troubled start, 2016 is proving to be a better year than many investors had thought possible.
