Disclaimer: The information in this article is not financial advice. Please consult a qualified financial advisor before making any decisions about your money.
The typical American sees gold everywhere. It is used in jewelry, coins, consumer electronics and even dentistry. Although this precious metal’s versatility is in part what makes it so commonplace, it is only one portion of its value. What’s interesting, is that much of the demand for gold is actually created by investors. In this way, gold is able to withstand hard economic times and falling consumer sentiment. When examining the 2016 Gold Market, this resilience becomes increasingly clear.
2016 Was a Good Year for Gold
Last year, the price of gold has skyrocketed. It saw an increase in almost every global economy. This is particularly the case in western countries. Take the United Kingdom for example. According to valuewalk.com, the price of UK gold is 40% higher than it was 12 months ago. It doesn’t take a genius to see that a UK gold investor would have seen a significant return in 2016, and it is not far-fetched to believe that we could see a similar increase this coming year. In part because of the softening of the global recession.
Now, it should be noted that 2016 marked gold’s first positive year since 2012. Gold naysayers will be quick to remind you of that. However, according to Business Insider, Gold generated higher returns than both the 10 Year Treasuries and The US Dollar. Additionally, Gold Miners were the best performing asset of the year, ending the year up an astonishing 54%.
Thus, according to Bloomberg News, gold traders have become the most bullish they have been in a year.
You Should Have Invested Sooner
Yet there will still be those that say to stay away from the yellow metal; or that gold at best will produce only a mild return. In truth, I admire a skeptic. In an uncertain world economy, it is critical that any investor weigh their choices carefully. I find myself asking, even though 2016 was a great year for gold, how can I expect that 2017 will have a similar outcome? A better question still would be “When exactly should I invest?” Thankfully, there are an enormous number indicators of one can evaluate when looking for these answers.
In regards to when, a good bet is sometime before or around January 28th. This of course, is the Lunar New Year. A date that has traditionally shown a growth in both demand and price of gold. It is an especially gold favored year this year, as it is the “year of the fire rooster, one of whose lucky colors is gold.” All joking aside, an early investment should see a quick return, one that will continue to rise throughout the year thanks to a deep and negative real rate.
It’s Not Too Late
If you are unfamiliar with the term, a real rate is inflation subtracted from the federal fund’s rate. In an early 2016 article on usfunds.com, Frank Holmes showed that there is an almost definite correlation between negative real rates and a rise of gold prices. It was in this same article that Holmes predicted the continued rise of the value of gold in 2016.
Still, this isn’t the only reason we should see a steady rise in 2017. It is becoming increasingly clear that gold is currently extremely undervalued. Since the election, the S&P has been on the rise, all while gold has been dropping. According to Holmes, “Gold is at it’s most undervalued in at least 10 years right now.” This, coupled with an almost certain rise in prices near the end of the month, means that a small investment now will almost certainly show quick returns. In layman’s terms, you better get while the gettin’s good.
Will Last Year’s Trends Continue?
Even if you are like most people, and don’t put your faith in the luck of a fire rooster. A continued examination of last year’s commodity trends should give you a still clearer picture of gold’s upwards projection. A Trump victory, in contrast to many predictions, has created a stronger US dollar. Usually, an increasing US dollar would create a negative impact on commodity prices. However, a similar increase in trade and manufacturing has allowed both the Dollar and the Gold price to grow simultaneously.
CLNA Analyst Christopher Wood writes “the renewed dollar strength post Trump’s victory has not been accompanied by renewed commodity weakness. Rather the reverse has happened, with copper rallying, for example, on presumed hopes of increased demand triggered by Trump’s infrastructure policies.”
Policies May Change But Gold Holds Strong
Yet it is clear there is a chance that Trump’s policies will threaten inflation. While this may seem in contrast to the previous statement, there is no reason to believe that the price of the dollar could greatly diminish the price of gold. Rather, it is important to realize that gold has proved yet again that it can stand resilient against harsh economic climates.
In some cases, the uncertainty of the world economy may actually have a positive impact on gold prices. As is tradition, gold is a go to for investors when they begin to lose faith in government banks. According to Adrian Day, who’s asset management company oversees $190 million dollars, “The euro zone has plenty of crisis triggers over coming months and Indian and Chinese buying remain strong… All of this is positive for gold.”
What seems most obvious, is that gold will continue the trends it began in 2016. Last year, overall, seems to have painted a remarkable picture of the resilience of gold. It outperformed a lot of its competitors; including tech companies like Netflix and Facebook. A commodity that performs well regardless of the economic climate is one that any investor should include in their portfolio.
There is no reason to believe that gold will decline this year, and there is every reason to believe that it very well could have yet another record breaking year. It almost seems too good to be true, but it’s not. In all honestly, I encourage you to continue researching by yourself. There is no doubt in my mind that you will come to the same conclusion. Now is the time to buy gold.