rally

Gold Outlook for 2017

August 24th, 2016 by

rallyAfter gold tore through the first half of the year, everyone is wondering what the next 18 months hold in store for the yellow metal.

Forecasters, analysts, and pundits on television have all weighed in on where gold is going of late. It not surprisingly became a popular topic of discussion as the year progressed, attracting an increasing amount of attention from traders and the markets.

Looking Ahead to 2017

gold-radarWith stagnation and uncommonly accommodative monetary policy as the new norms around the world economy, there are reasons to believe that the precious metals will continue to serve as safe havens for investors in the coming year and a half.

Gold is now squarely on the media’s radar thanks to its 27% surge over the first seven months or so this year. Typically, the financial news hardly bats an eye at gold, denigrating it with the label “pet rock.”

Yet 2017 may well be a “magical” year for the gold price amid such doubt about the future. A number of analysts have pointed toward poor market conditions, supply and demand dynamics, and geopolitical unrest as strong fundamental drivers for higher gold prices.

Perhaps most importantly, these fundamental factors are highly unlikely to change over the medium term. The wars in the Middle East, the inflated state of the financial system, the lingering Brexit question, and the panicked response to these crises are unfortunately here to stay for the time being. Until the markets are firmly in a risk-on scenario, the desire to protect one’s portfolio with gold will continue to be a widespread concern.

Strong Q2, H1 Performance

In fact, there are reasons that suggest this could just be the beginning for gold. While writing for the Financial Times, admitted gold bear Diego Parilla lays out the stark reality that central banks and governments cannot easily unwind or normalize the extreme measures they’ve taken. In essence, they may have backed themselves into a corner where they are damned if they act and damned if they do nothing. This “catch-22” could be a source of irreparable damage for the normal functioning of the financial system—if such a thing is even possible under the current economic conditions.

Recent data has also been supportive of gold’s strong fundamentals. According to the World Gold Council (WGC), demand for the yellow metal rose 15% year-on-year during the second quarter of 2016.

Image courtesy of World Gold Council

Total global gold demand during the first half was the second-highest on record. Perhaps more impressive, investment demand during H1 was actually the highest-ever for half of a year. Moreover, “Investment was the largest component of gold demand for two consecutive quarters (Q1 and Q2)—the first time this has ever happened.”

Although higher gold prices meant jewelry sales were weaker, this was balanced out by strong investor interest. For instance, gold ETFs saw net inflows of 579 tonnes of gold during H1 2016.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.