Gold had an incredibly interesting year in the year 2016. In the beginning of the year, the precious metal skyrocketed as China started a domino effect of global economic hardships. The run upward in the value of the precious metal continued throughout the first half of the year. However, in July, as economic conditions around the world started improving and opportunities started heating up in the market, the value of gold fell. Now, many are saying that the downward trend will continue throughout the first few months of 2017. So, what pitfalls does gold truly face in the first few months of the year? Today, I’ll do my best to answer that question.
Improving Sentiment Surrounding Oil
When we think of oil, most of us think about energy. Anything from gasoline to our electric bill. However, the truth is that oil is ultimately ingrained in just about everything. Oil is not only used in energy, it is used in manufacturing of plastics and other important materials. At the end of the day, oil isn’t just a commodity, it’s a signal of economic conditions.
When oil falls in value, it creates a line of reduced income for an incredible amount of companies around the world. Even some entire economies have been built around the commodity. At the moment, sentiment is changing in the sector. With oil production cut agreements from both OPEC and non-OPEC member nations, the overwhelming expectation is that oil will climb in value.
Because oil is fully entrenched in several economies around the world, gains in the value of the commodity will likely lead to further improving economic conditions. At the end of the day, this could prove to be bad news for the safe-haven investment that is gold.
The Donald Trump Market Rally
Donald Trump is now the President of the United States. Leading up to his inauguration, the market rallied on comments that he would changed trade agreements, improve economic conditions, and “Make America Great Again.” Now, it’s time to see if these words materialize into action. If so, the market rally could continue in a big way ahead.
In the first few days of his Presidency, Donald Trump has already signed several agreements surrounding economic drivers like trade agreements, oil pipelines, and more. With him seemingly following through on his promises, investors are likely to continue pushing stock values upward. This is yet another hit to gold from a safe-haven perspective.
There Is A Caveat Here
While things are looking rough for gold for first few months of the year, there is a caveat here, and things may end up going pretty well throughout the entire year. As we can see from the movement in the precious metal over the past year, gold’s value is largely correlated to global economic conditions. While in the short run, things look great economically, this can change quickly.
First and foremost, the market is reacting to the early moves Trump is making as the President of the United States. However, even Trump himself said that the first year is going to be difficult. So, if he follows through on his promises, while economic conditions will improve in the long run, we’re likely to see some hard times through 2017. This could lead to increasing safe haven demand.
Another factor that may benefit gold in the year ahead is the Brexit. As things are going now, it looks like a hard Brexit may be the final result. If this is the case, the economic and market implications among two of the world’s largest economies could be massive, leading to further safe-haven demand.
At the end of the day, there’s no denying that the first few months of the year 2017 are likely to shape up to be rough for gold. However, there’s also no denying the fact that there are several catalysts that could drastically change the direction of gold ahead. All in all, this year is likely to be a wild ride for gold!