Gold Reverses Annual Losing Streak

January 2nd, 2017 by

Gold prices ended 2016 on an up note, closing 8% higher for the year. This is the first year since 2012 that gold has posted an annual gain, lending hope that a long-term bottom has been found in the market. Silver also recorded an annual gain, rising 14% for the year. Markets in London and New York are closed for the New Year’s holiday, making for very light economic news.

The US dollar hitting 14-year highs in December muted any commodity gains when recorded in dollars. A look at gold prices in other currencies shows what foreign buyers were paying:

2016 Gold Prices Overseasgold-rally-market

  • EU:      +11.9%
  • UK:      +29.7%
  • China: +16.4%
  • India:   +11.4%
  • Japan:  +5.4%
  • Russia: -9.4%

The big outlier in gold prices seems to be Russia. However, lower gold prices in Moscow are due to their ruble recovering from a currency crash caused by lower oil prices and economic sanctions. The Russian currency ended the year 21.3% higher, to be one of the best-performing assets of 2016.

Will Santa OPEC Deliver?

The eagerly awaited cuts in global oil production is set to begin this week, though news emphasized just recently highlights the fact that the signatories do not have to hit their promised reductions right off the bat.

Oil prices have practically doubled from 2016 lows, as oil traders put their faith in OPEC’s pledge to cut production by a combined 1.2 million barrels a day. Russia and other non-OPEC oil nations have pledged a cumulative production cut of 600,000 barrels a day. The market has front-run the expected reduction in global oil oversupply with no real evidence. We shall see later this year whether this petroleum Santas Claus really exists.

Even if all signatories uphold their end of the bargain, US fracking operations are salivating at the thought of $60 oil, ready to jump into the market with more supply. Baker Hughes reported Friday that shale drillers had added 2 more rigs over the Christmas holidays to end the year at 525 active rigs. 2016 started the year at 536 rigs before dropping 20 the week ending January 8.

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Stocks ended the year on a down note, as investors took profits and rebalanced their portfolios heading into 2017. US equity mutual funds saw significant outflows last week, especially in actively managed funds. So-called “passive” mutual funds, which simply track stock indices, have outperformed the vast majority of actively-managed funds, and have done so with lower fees. This trend has so alarmed fund managers that they have mounted attacks on index funds, saying that they distort the market.

The first three months of 2016 compared to the last three show just how volatile today’s economies are. With Trump’s inauguration weeks away, 2017 is even more uncertain. Will US relations with Russia thaw? Will a Trump Administration conduct an aggressive policy against China? Will the US bring a new strategy in combating the so-called Islamic State? Are increasing terror attacks in Europe predicting that America is next?

There’s no way to know. What is known, however, is that as little as 2% of your portfolio invested in gold can help smooth out the hits that volatile markets and “black swans” can cause, according to the World Gold Council.

Here’s wishing our readers a safe and prosperous new year!

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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