Gold began the week with a big jump in price as a string of unexpected proclamations and setbacks for the new Trump administration rattled investors around the globe. In fact, gold hit a high it hasn’t seen since 2016.
Despite recent impressive stock market gains, the unpredictable and combative style of America’s new president has many investors looking for safe-haven alternatives to stow their stock market windfalls before the trend breaks.
The dust is beginning to settle around the new president’s plans for border security and infrastructure spending, giving investors a chance to see how far stocks have gotten ahead of reality. For example, last Friday’s U.S. employment report showed that U.S. wage growth is slowing, which could well cause the Federal Reserve to back off its planned interest rate hikes in 2017.
President Trump has recently been quite vocal in his desire to see a lower dollar, which also bodes well for higher gold prices ahead.
LBMA ANALYST SURVEY CALLS FOR HIGHER GOLD IN 2017
In the latest recent London Bullion Market Association (LBMA) survey, analysts are predicting that the average gold price in 2017 will be 5.7% higher than the average price in the first half of January 2017. Moreover, analysts are even more bullish on the prospects in the coming year for silver, with an expected price increase of 7.1%.
Given rising geopolitical turmoil and escalating tensions, 2017 is expected to be a pivotal year for gold with an ambitious U.S. president eager to make change and indications that the other countries besides the U.K. (such as France) are now considering abandoning the EU.
If the new U.S. administration adopts reflationary policies through tax cuts, higher infrastructure spending and defense spending, gold prices will head higher. Against a backdrop of potential trade wars between the U.S. and China as well as Mexico, growing tensions with Iran and critical elections in Europe, 2017 will be the year when gold and silver reaffirm their historical position as must-own, safe-haven assets.
Also helping precious metals are signs of a weakening U.S. dollar. The greenback has been undermined by the new administration’s weak dollar rhetoric, helping the dollar deliver its worst January performance in three decades. Forex.com’s head of research James Chen believes the U.S. dollar is likely to be pressured further, as the promise of Fed tightening fades for the time being.
As the outlook for interest rates becomes more stable, gold’s downside is likely to remain limited, especially as the stock market tests new record highs.
STRONG GLOBAL INVESTMENT AND RETAIL DEMAND FOR GOLD
Geopolitical uncertainty is ideal for gold. Yet, further underpinning its appeal is strong demand globally. In 2016, full-year gold demand gained 2% to reach a three-year high. Gold prices ended 2016 up 8% in large part due to this robust demand.
According to the World Gold Council, the market for gold bars and coins has boomed globally for the past ten years. WGG identifies one key factor driving this surging market: successive financial crises that have tested investors’ faith in governments, banks, monetary policies and fiat currencies around the world.
In 2016, WGG researched gold buying behavior across the major markets of China, India, Germany and the U.S. and concluded that the global retail investment market is well positioned for growth. In fact, demand across the top four gold and coin markets in 2016 accounted for 58% of global demand. Bar and coin demand especially sprang into life in the fourth quarter of 2016. The fourth quarter was China’s strongest quarter for bar and coin demand since the second quarter of 2013.
According to UBS, gold will be further supported by even deeper negative interest rates, which could fall to their lowest level in two years as inflation outpaces nominal interest rate increases.
TAKE CONTROL TODAY AND DIVERSIFY YOUR WEALTH
The news of late has been alarming to many investors, but having gold in your retirement portfolio can go a long way towards softening the blow. Talks of walls, bans and wars are not beneficial for your paper-based assets. But reacting to short-term events emotionally can be detrimental to your retirement and the wealth you have worked so hard to achieve.
Gold and silver are the bedrocks of any sound investment strategy, and owning physical precious metals gives privacy, portability and a level of diversification and comfort no paper-based asset or fiat currency can.
