Gold Price Forecast 2017

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After an incredible year for gold in 2016, we take a look at the expert’s predictions for 2017 …

Generally speaking, the gold price forecast for 2017 is a mixed bag. With many of the conditions that aided last year’s rally still at force, there is a general, if understated belief that this gold bull market is sustainable . However, many believe that the increase could be limited by increased interest rates in the US, with as many as three hikes expected in 2017 after the release of positive economic data boosted confidence in the strength of the US economy.

RBC has predicted gold to trade at an average of $1,245 per ounce and $1,303 in 2018, with 3 rate hikes priced into a low of $1,200 and an annual high of $1,300.

Goldman Sachs analyst Abhinandan Agarwal has also claimed that the proposed increases to US interest rate hikes could be a considerable negative catalyst for gold in the coming year, with the extra incentive to save likely to curtail some of last year’s demand for gold. However he also believes that the scale of this downturn could be offset by some of US President Donald Trump’s policies . Protectionist policies such as trade barriers and border adjustment tax could prove to be detrimental for US growth, prompting safe-haven inflows into gold .

HSBC’s James Steel appears to agree with this point of view , claiming that in the long term this gold bull market is still very much intact . He claims that despite fear over the fiscal cliff, Chinese economic slowdown and economic catastrophe in Greece apparently subsiding, the long term outlook for gold is positive . Steel pointed to the fact that on the COMEX, over the last 12 years, on no single week have the net longs, mainly made up of hedge funds, been shortened , even if the extent of some longs have been reduced. He affirms that despite a potentially lower pace in the coming year, the longevity of this bull market should not be questioned.

Low interest rates are likely to continue to contribute to this. Should the CPI continue to outpace interest rates hikes, savers will surely look to alternative investments in a world of negative real interest rates. When putting money in the bank becomes an expense, solid assets such as gold become more attractive.

Joni Teves of UBS supported this in an LBMA report, predicting an 8% rise in the gold price in the coming year . He listed stagnant interest rates amongst a list of reasons, including elevated macro risks and a belief that the dollar has peaked, behind his forecast of an average gold price of $1350/ oz t in 2017.

This view is not shared unanimously amongst the other contributors to the LBMA report , who have predicted on average a 0.5% drop in the gold price. Reasons for lowered expectations included positive economic data in the US, notably the unemployment rate, which dipped in January. Improved jobs data presented a catalyst for March’s rate hike, which could prove to be negative for gold. With up to three more proposed for 2017, a higher incentive to save rather than invest in safe haven assets could lower demand for gold.

However, much of this depends on the pace and scale of these interest rate hikes, and the dovish tone of the Fed in this month’s meeting indicated that further interest rate hikes are not as certain as first believed.
Rising inflation is also a potential concern. Should the pace of inflation get out of hand, then investors will flock to gold as a means of maintaining the value of their wealth .

Furthermore, conditions in Europe are well suited to another gold rally . Last year’s steep increase in the gold price was in no small part aided by the reaction to Britain’s decision to quit the European Union. With populist fervour rising around the globe, and several key elections to take place within Europe in 2017 , further victories for Eurosceptic parties could lead to more withdrawals from the European Union. Such an event would almost certainly spell the end of the euro and such a monumental currency collapse would almost certainly see huge inflows into safe-havens such as gold .

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