Gold heads for a bumpy ride in 2017
According to the reports, world’s safest haven will suffer losses in 2017 as interest rates climb and the dollar strengthens.
The top two gold forecasters, Oversea-Chinese Banking Corp. and ABN Amro Group NV see gold sliding to $1,100 an ounce by the end of next year as the Federal Reserve tightens monetary policy, real Treasury yields increase and the US currency rises.
Values reached record highs of $1,900 during the financial crisis and in 2016 gold surged immediately after the surprise Brexit vote and election of Donald Trump. But since November prices have steadily fallen to sit around $1,133 – from highs of $1,372 seen in August. Gold slumped to a nine-month low of $1,171.18 in December on speculation that his pledges to increase spending and revitalize the economy would boost interest rates and augment the attraction of other investments such as stocks and bonds.
A similar pattern could emerge next year amid political turmoil in Italy and the looming French and German elections, according to the experts. Julian Jessop from Capital Economics, predicts that gold demand will be at $1,050 by the end of 2017. He said, “The responses to new shocks in 2017 may not be so benign.” Gold prices could also remain under pressure amid a strengthened dollar, which makes the commodity more expensive for investors. The US currency surged this year after the US Federal Reserve raised interest rates and forecast as many as four increases in 2017.
The domestic equity market underperformed on likely hike in interest rates by the US Federal Reserve and fear of a temporary slowdown in the domestic economy after demonetisation of high-value currency notes. The benchmark equity index has gained only about 2 per cent so far this calendar. Prices of the yellow metal had advanced to `28,184 per 10 gm till December 7 from `24,967 per 10 gm on December 30 last year. Similarly, silver prices are up from `32,900 per 1 kg to `41,160 in the same period.
Prathamesh Mallya, Senior Research Analyst- Commodities & Currencies, Angel Broking, said, “Gold prices advanced on account of concerns over financial stability and slower global growth. Further, mixed trends in global equities, inflows into gold funds and buyers’ interest in accumulating the yellow metal on any meaningful correction further supported prices.” Since the beginning of November, gold prices have tanked over 7 per cent in the domestic market. The US dollar has also played its role in the correction of the yellow metal. The dollar index has gained nearly 2.50 per cent since November 1 and crossed the psychological level of 100.
Like gold, silver also witnessed mixed trade in 2016. Silver prices surged over 40 per cent between January and July. However, the prices retreated since then and are now near the `41,000 per 1 kg level. Despite the correction, silver outperformed other asset classes in 2016. Madhavi Mehta, Analyst at Kotak Commodity Services, said, “Silver remains in a limbo due to mixed trade in gold and industrial metals. Gold is trading at multi-month low due to lower safe haven demand, strength in the US dollar and uncertainty over domestic demand. On other hand, most industrial metals are trading near multi-month highs supported by improved risk sentiment and demand expectations. Silver ETF activity has been subdued in comparison with that in gold. We could see this mixed trend in gold and industrial metals continuing in the near term and this may keep silver prices choppy and range bound.”
The focus will be on the Fed’s future stance and that will determine the future trend in gold prices. If the Fed maintains its stance of keeping interest rates low for a long time, it could put a floor to gold prices. Industrial metals have already rallied on expectations of higher infrastructure demand from the US and China. The rally could come to a halt if the demand fails to materialise. In the domestic market, silver could trade in the `38,500-43,500 per kg range in the coming months, analysts said.
Courtesy: Economic Times & Express