Gold to remain a strategic portfolio component
Major trends in 2017
The gold price had a strong performance in 2016, rising close to 10% in US dollar terms (higher in most other currencies) and amassing multi-year record inflows through physically-backed gold ETFs – making it one of the best performing assets last year, despite a post-US election pullback. And the price has gained more than 5% since the Federal Reserve (Fed) increased rates in mid-December. But, what does 2017 hold for the gold market? Using the economic perspective from our guest economists as a backdrop, we believe there are six major trends in the global economy that will support gold demand and influence its performance this year:
1. Heightened political and geopolitical risks
2. Currency depreciation
3. Rising inflation expectations
4. Inflated stock market valuations
5. Long-term Asian growth
6. Opening of new markets.
Dubbed the “most accurate forecaster in America over the past 10 years” by MarketWatch, Chief US economist Jim O’Sullivan, sets out his views for 2017 and beyond. He suggests US economic growth will pick up pace, the Federal Reserve will tighten rates by at least 175 bps over the next two years and inflationary pressure will mount. He also fears an economic downturn is highly likely at some stage during the Trump presidency.
John Nuge, renowned economic and geopolitical commentator, former Chief Manager of the Reserves of the Bank of England and Director at the European Investment Bank, expects three trends are likely to dominate Europe in 2017: a continuation of tight fiscal and loose monetary policy; an increase in unconventional economic interventions, and growing divergence with US monetary policy. These are likely to put further pressure on the euro and create rising friction between northern and southern members of the Eurozone.
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