Can Gold Breach $1,400 before the End of 2017?
Factors impacting the gold outlook
We’ve already discussed in the preceding parts of this series how gold prices have been trending mostly upward over the past few weeks. And the factors that have led to gold price gains could only intensify going forward, leading to even more gains.
One of the most important factors affecting gold right now would be a worsening US economic outlook. Any further weakness in the job market and inflation would be seen as a sign by a dovish Fed for the rest of 2017, which would mean that the rate the hike trajectory for the rest of the year would remain low—which would be beneficial for gold.
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A loose monetary policy would also mean more pressure on the US dollar. The dollar has already been battered as doubts have cropped up about the Trump administration’s ability to dodge the scandals surround his 2016 campaign and to follow through with his pro-growth agenda. A weaker dollar is usually positive for dollar-denominated assets such as gold.
From an alternative assets perspective, gold seems to be an attractive investment right now. US stock market valuations have become quite stretched, and in the absence of earnings growth to justify these valuations, investors might look out for less crowded trade.
Geopolitical risks and physical demand
At the same time, there are still many geopolitical risks facing the global economy. Terrorism, especially among European nations, has been on the rise, and the tensions between the US and North Korea are as high as ever. The investigation into Russia’s meddling with 2016 US elections are still ongoing. The Middle Eastern situation is, of course, far from under control. Any further flare up could cause investors to seek refuge in gold’s safe-haven status.
Lastly, the physical gold demand appetite among world’s two largest consumers, China and India, seem to have returned after a weaker first quarter. The Chinese government’s steps to rein in its debt and China’s property market controls are already turning investors toward gold. Indians are also back in the gold market, after a prolonged break due to the lack of liquidity caused by demonetization.
The whole picture
All the above factors could propel gold toward higher highs for the rest of 2017. However, investors should note that things can alway change quickly in markets.
If the US economy and the job market recover in coming months, the Fed might get back on track for more monetary tightening and another hike later in the year, which would be negative for gold (GLD) and gold stocks (GDX) (JNUG) like IAMGOLD (IAG), Barrick Gold (ABX), Kinross Gold (KGC), and Agnico Eagle Mines (AEM).