Six Positive Gold Trends For 2017 - WGC
Monday January 16, 2017 13:04
(Kitco News) - There is reason to believe the gold market is in for another great year. Actually, according to the World Gold Council, there may be six reasons.
In its 2017 outlook report, released Friday, the organization laid out reasons as to why gold will remain "highly relevant" and listed several trends that are likely to support continued demand for the metal in 2017.
The six trends the WGC highlighted include: heightened political and geopolitical risks, currency depreciation, rising inflation expectations, inflated stock market valuations, long-term Asian growth and opening of new markets.
However, the three standout factors, according to three economists quoted in the report, will be Asian growth, political uncertainty from Europe as well as rising inflation as a result of U.S. policy.
According to Jim O'Sullivan, High Frequency Economics' chief U.S. economist, the Federal Reserve is likely to hike interest rates by 75 basis points this year, followed by another 100 bps in 2018. At the same time, inflation is expected to pick up, he added.
"[M]omentum remains upward, with unemployment low enough to maintain that upward momentum unless slack starts rising again - which is unlikely without a recession."
An upward inflationary trends is likely to support demand for gold, the WGC explained. The metal is traditionally viewed as an inflation hedge and inflation tends to make other assets less attractive to long-term investors, the report said.
O'Sullivan added that the U.S. expansion trend is likely to continue but chances are it will come to an end during Donald Trump's presidency, which would also bode well for gold. "We don't see much chance of recession in the year ahead, or even in 2018, but the expansion will not last forever."
Former chief manager of the Reserves of the Bank of England John Nugée said he sees a positive outlook for gold on the back of heightened political uncertainty, particularly in Europe. He said there are three trends likely to dominate the region, including tight fiscal and loose monetary policy, more unconventional economic interventions, and a growing divergence with U.S. monetary policy.
"Faced with this mixture of political risk and policy divergence, many investors may be tempted to put their portfolios into defensive mode," he said.
"But with cash continuing to yield little if any return, and markets that respond to events in counter-intuitive ways, this would be unwise. Instead, portfolio resilience and diversification in the face of shocks will be key," he added.
To Standard Chartered Bank's chief economist David Mann, the key driver for gold demand this year will come from Asia. The award-winning economist expects the region to account for 60% of global growth in 2017 and will continue to reduce its economic exposure to the West.
"While we are wary of the outlook for private-sector investment and trade, given the uncertainties created by a Trump presidency in the US, we are less concerned than we might have been a decade ago, given that Asia's economic linkages to the US are now much weaker," he explained.
Continued growth in the region will likely lead to heightened demand for gold, especially from the world's two-largest gold-consuming nations, China & India.
Gold prices have been off to a good start this year, rallying over 4%, last trading above key psychological support at $1,200 an ounce.