Gold price jumps to 11-week high – more gains ahead

1973 Dines Letter advertisement in Barron’s. Image via All Star Charts

Gold advanced to an 11-week high on Thursday as the metal finds support from safe haven buyers amid increasing global economic and geopolitical uncertainty and a weaker dollar.

Greater uncertainty should prove positive for gold as could higher in inflation if the new US administration adopts reactionary policies

In brisk trade of more than 21m ounces gold for delivery in April, the most active contract on the Comex market in New York, hit a high of $1,227.50 early on, up over 1.6% from Wednesday’s close. The metal gave up some of those gains in afternoon trade but was on course to settle around $1,218 an ounce, the highest closing level since November 17.

Gold is now up 6.6% so far his year, but has taken a beating since Trump’s victory trading some $110 an ounce below its high on election night November 8.

Source: LBMA

Source: LBMA

Source: LBMA

Source: LBMA

Gold bears are betting that a Trump administration will lead to strong US economic expansion, higher interest rates and a stronger dollar. Higher interest rates (after adjusting for inflation) boosts the value of the dollar and makes gold less attractive as an investment because the metal is not yield-producing and investors have to rely on price appreciation for returns.

But that narrative has began to unwind as President Trump’s swift action on US trade deals began to hurt the dollar and worries about the broader geo-political impact of a Trump administration, a hard Brexit and key elections in Europe mount.

Forecast contributors to the annual London Bullion Market Association‘s long-running competition are predicting that the gold price will average $1,244 an ounce in 2017. That compares to an average gold price of $1,247 an ounce last year, 2015’s average of $1,160, but nowhere near 2012’s $1,689:

The analyst who scooped first prize in the 2016 forecast, Joni Teves, is the most bullish, forecasting an average price of $1,350/oz according to the LBMA survey.

Bernard Dahdah of Natixis, who claimed first prize in the 2015 survey with a prediction that came to within $1 of the average for the year is the most bearish this year with an average forecast of $1,110/oz.

2017 will certainly be an eventful and unpredictable year given the high degree of geopolitical uncertainty, with a more nationalistic US President in residence and the indications that the UK will pursue a hard Brexit in its negotiations with the EU.

There is also the prospect of further uncertainty with elections to be held later in 2017 in both France and Germany, as well as the potential for tensions between the US and China.

Analysts are predicting that the gold price will trade in an average range of $1,101/oz to $1,379/oz. Greater uncertainty should prove positive for gold as could higher in inflation if the new US administration adopts reactionary policies.

On the downside are the anticipated three US rate hikes in 2017, a stronger US currency and rising stock prices as well as continued weak demand from both China and India.

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