Factors impacting the gold outlook
In the preceding parts of this series, we discussed how gold prices have been behaving in a volatile manner, gaining on geopolitical concerns and then giving up those gains to the hawkish Fed stance and the US dollar strength. These same variables could, however, continue to impact gold prices going forward.
Investors are anticipating tax reforms in the US that would seek to significantly reduce the tax rates for companies and individuals. Tax reforms are seen as a catalyst for economic growth. Thus, reforms could be positive for the US dollar and negative for gold if everything else remains the same. Investors should note that a jump in economic growth could also lead to higher inflation, which is usually positive for gold prices.
Impact on gold prices
Apart from tax reform, the Fed’s rate hike expectations will continue to drive gold prices. While a December 2017 hike is almost certain and priced into gold prices, the Fed’s tone will be something to take notice of. In addition, the US job market and inflation will be the key factors to look out for. Developments on these fronts could give a clue regarding the Fed’s future rate hike path trajectory.
While higher US stock markets are currently driving investors away from gold, most market participants believe that a correction in the market is imminent. Such a correction would be beneficial for gold prices. Under such a scenario, gold (GLD) and gold stocks (GDX) (JNUG) like Barrick Gold (ABX), IAMGOLD (IAG), Kinross Gold (KGC), and Agnico Eagle Mines (AEM) could gain.