gold rally

Is It Bullion’s “Time to Shine”?

April 5th, 2017 by

We all know that gold and silver bullion are lustrous—in a word, shiny. It’s one of the physical properties that helps distinguish these metals from their more commonplace cousins.

In a more figurative sense, however, 2017 may prove to be the time that these precious metals really began to shine (as financial assets).

Solid Ground in an Uncertain Market

A number of financial analysts appear to have a blind spot where gold is concerned: they treat it simply as a “pet rock” or, oddly enough, as some sort of “fool’s gold” for investors. For many years prior to the financial crisis, when someone asked an “expert” about owning gold, this was the prevailing response.

The near-collapse of the world’s financial system almost a decade ago brought about a shift in this “conventional wisdom.” During a period that saw investments in equities and real estate utterly tank in value, the gold price skyrocketed to all-time highs, providing an effective hedge for those who had been holding the yellow metal. Although the general antipathy toward gold as an asset remains strong, the financial news media has at least been talking about gold more and more.

For instance, the author of Precious Metals Investing for Dummies, Paul Mladjenovic, was given a recent video spot on MarketWatch to explain the various benefits of investing in physical gold—as well as the pitfalls of “paper gold” like gold ETFs and futures or options.

To the same token, CNBC (which it is not disputed is squarely within the “mainstream”) interviewed Todd Colvin, a trader for the firm Ambrosino Brothers, about the current outlook for the gold market. Despite the host’s dismissive suggestion that the gold trade looks “troubling,” Colvin cited a number of factors that should support a fresh rally for gold. He explained that they were each “macro” in scope: upcoming European elections; Fed policy; fiscal policy; and U.S. economic growth.

gold rally

The critical common thread that underlies each of these factors is uncertainty. Safe-haven demand for gold ebbs and flows depending on the level of risk (or awareness thereof) that market participants perceive. Colvin noted that the “cloudy” information about what the Federal Reserve will do, and how France’s political future plays out, will remain supportive of higher gold prices until the second half of the year. Bear in mind that gold advanced 8% during the first quarter.

The main takeaway is that although bullion may not shine with blinding intensity in the immediate, it should continue to be the preferred safe haven throughout 2017 for investors worried about uncertain macroeconomic trends. In Colvin’s words, “Gold is a safe place to go.”

 

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.