For the first time since 2012, the gold price moved in a positive direction in 2016, gaining over 8% in terms of U.S. dollars. This followed three consecutive losing years. This development came despite the dollar surging to a 14-year high toward the end of the year.
In fact, when measured in other currencies, the performance for gold was even more impressive. The yellow metal rose over 16% when priced in Chinese yuan and nearly 30% in British pounds sterling.
As 2016 recedes into the rear-view mirror and attention turns toward the new year, what can investors expect from the gold market in 2017?
Return to Safe Havens
If there's one truism about markets that never seems to fail, it is the nature of "corrections." This is when a market moves too far in one direction (whether up or down) and eventually corrects for the imbalance. In general, however, corrections imply a downward bias. Savvy contrarian investors often use this logic to position themselves to take advantage of the impending correction: They might go long on a particularly battered security or asset, or, conversely, open a short position on a market that is running too hot. As an example, anyone who watched U.S. stocks continuously rally through November and December may have had a hunch that the equity markets would eventually stall.
In short, the current risk-on exuberance in the stock market can't last forever—at least, not without a few healthy hiccups along the way. Whereas expectations for the economy and financial markets are sky-high in the wake of Donald Trump's electoral victory, the president-elect's bombastic Twitter habits could become a new source of market anxiety.
The main mouthpiece that has moved markets with their words up until now has been the Federal Reserve's chairwoman, Janet Yellen. Investors of both the retail and institutional variety digest every subtlety of Yellen's statements in order to forecast Fed policy. Trump appears to have usurped that role, disrupting market activity each time he tweets about foreign policy, taxes, trade, and even monetary policy. (Trump has indicated that he supports keeping interest rates low and taking on more debt, yet has contradicted this viewpoint by criticizing Yellen et al for keeping rates so low for so long.)
There are, of course, contradictory points of view all across the "punditsphere" in regard to how the economy (and gold) will perform in 2017. One of the mainstream beliefs is that inflation will rise under a Trump administration due to the positively yuge fiscal stimulus Trump has proposed in the form of a trillion dollars in infrastructure spending. The logic of this assumption is technically sound, but there are other factors in favor of an argument against a burst of inflation during a Trump presidency. Rising interest rates and a robust dollar could put a serious damper on inflation running any higher.
Especially if events unfold contrary to such conventional wisdom, as was the case throughout 2016, the general uncertainty could spur a new wave of safe-haven bids by investors. This is a bullish scenario for gold. Though some experts certainly endorse this narrative of a continued turnaround for gold in 2017, there are others who vehemently disagree. Opinions range from a 13% increase for gold next year to pessimistic convictions that it will fall as low as $1,000 per ounce in 2017.
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.