Without a doubt, 2016 has been a volatile year for gold prices. It's been a year of erratic trading in the gold market, to say the least. After surging more than 25% during the first half of the calendar year, the year-to-date gains for the yellow metal have dwindled to just over 6%.
After this disappointing end to what was on balance a pretty encouraging year for the precious metals, what can we expect for gold in 2017? Some experts believe the case for a swift turnaround is strong.
Limping to the Finish Line
What caused the gold price to decline so quickly from November onward? In a somewhat bewildering development, safe-haven demand for gold and silver fell off of a cliff shortly after spot gold hit its yearly high right in the middle of Election Night. The swings this year have been particularly intense.
One of the driving factors of this abrupt selloff is the reversal of negative market sentiment that dominated the first half of the year. This pessimism or "irrational despondency" (as opposed to "irrational exuberance") has been replaced by hope for the incoming presidential administration.
As a direct result, gold has fallen on tough times. Spot prices and futures are in the midst of their longest slump in over a year. Gold exchange-traded funds (ETFs) have seen outflows for a shocking 30 consecutive trading sessions. Meanwhile, gold is headed toward its seventh straight week of losses.
If nothing else, this could be an indication that the market has bottomed and is poised to turn around next year.
The gold market was up-and-down no matter what perspective you look at it from. A stagnant summer of mostly flat price action gave way to a dramatic swing back and forth during the presidential election this fall. The fluctuations of the gold market don't unfold in a necessarily predictable manner, but there are ways to position oneself to maximize the benefit of a market upturn.
The outlook for 2017 remains muddled, but a few points work in gold's favor. First, it's not altogether surprising that the market corrected from its biggest rally during H1 in four decades. In other words, the market got ahead of itself. Second, the rush by investors to get out of the precious metals markets in order to ride the stock market rally means that if there is a snapback higher next year, it could be fairly dramatic. This gives gold significant upside in 2017 relative to other assets.
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.