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How Does US Economic Growth Bode for Gold in 2017?

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US jobs report

The US jobs report showed 156,000 job additions in December 2016. This number was below the consensus estimate of 175,000 job additions. The number for November 2016 was revised upward from 178,000 to 204,000.

The unemployment rate in December was 4.7%. While this was a slight rise over the 4.6% rate recorded in November, it was still close to full employment.

Wages in December 2016 rose 2.9% over December 2015. This was the largest one-year rise in the last seven years. Average hourly earnings rose to $26 in December, $0.10 higher compared to November.

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Strong growth outlook

The International Monetary Fund (or IMF) is also predicting that US economic growth will come in at 2.3% in 2017 and 2.5% in 2018, compared to lackluster growth of 1.6% in 2016. The IMF is hopeful that President-elect Donald Trump’s policies will help the United States to achieve strong economic growth in 2017 and 2018.

According to IMF’s chief economist, “Markets have noted that the White House and Congress are in the hands of the same party for the first time in six years, and that change points to lower tax rates and possibly higher infrastructure and defense spending.”

Deutsche Bank (DB) is even more optimistic about the US economic outlook under Trump’s administration. It believes that Trump’s policy changes could push economic growth to 2.4% in 2017 and 3.6% in 2018.

Fallout on gold

While a brighter outlook for the US economy is most likely negative for gold (GLD) as an investment, the full impact will only be visible once Trump actually converts some of his pre-poll promises into reality after taking office. In the meantime, gold, along with stocks such as Barrick Gold (ABX), Franco-Nevada (FNV), Silver Wheaton (SLW), and Royal Gold (RGLD), will be driven by the economic data coming out of the United States and the rest of the world.

ETFs such as the VanEck Vectors Gold Miners ETF (GDX) invest in these stocks. ABX accounts for 5.5% of GDX’s holdings.

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