Why Gold Prices Could Remain Weak in the Short to Medium Term
Factors impacting the outlook for gold
Previously in this series, we’ve discussed how gold prices are under pressure due to the firmer US dollar, tax reform, and the risk-on sentiment in the market. Geopolitical concerns, which have supported precious metal prices for the last few months, have subsided for now.
In the absence of any sudden geopolitical events, these same variables should affect gold prices going forward.
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All factors pointing to a downside
It is almost a unanimous expectation that the Federal Reserve would raise rates by 25 basis points in December 2017. In 2018, three more hikes are expected. As the US economy continues its recovery, these rates should start normalizing in 2018, leading to gold losing its appeal versus yield-bearing assets.
Equity markets are creating continually higher highs, which is dimming the appeal of gold and other precious metals. The Tax Cuts and Jobs Act was passed by the US Senate on December 2, and investors are waiting for the next step. Lower corporate tax rates would help businesses, which could increase the attractiveness of equities versus precious metals.
Other factors such as rising inflation and debt expansion could impact gold prices in the long term. However, that factor is not of much concern in the short to medium term. Currently, investors’ interest in bitcoin has kept them away from gold.
The recovering US economy and tax reforms could support the US dollar going forward. In this, this trend would be gold prices.
Lack of positive catalysts
Currently, there are not many catalysts that could support the rally in gold prices. In the absence of upside catalysts, it could come under selling pressure even if a small negative catalyst materializes.