Gold has been one of the best investment stories in 2016, although it experienced a bit of volatility towards the end of the year in the aftermath of Donald Trump’s surprise election victory.
Milling-Stanley talks about the outlook and various market forces that may impact on the price of gold in 2017.
Q: What have been the main drivers of gold’s resurgence in 2016?
GMS: The main drivers in the early part of 2016 were the removal of some negatives. The dollar ran up and had been very strong in 2015. That was no longer the case in 2016. Also, equities have been on a tear and there has been a lot of volatility in 2016. People are buying gold as protection and anticipated further volatility in equities.
Q: Will there be room for further gains in the gold price in 2017?
GMS: I think the current price is sustainable. Basically gold is trading in the range of $1,150– $1,350 an ounce. Whether we see further gains is very much up in the air at this point because the gold price will be impacted by the actions of the new US administration.
The gold price will be supported by continued improvements in the balance between supply and demand — stronger jewelry demand, stronger investment demand and probably declining production as production costs rise. These are going to be the major factors in 2017.
Q: How will ongoing market uncertainties impact the gold price?
GMS: Whether it is the Brexit vote or the Trump election, people are getting used to market uncertainties. Historically, gold has thrived when either macroeconomic or geopolitical events caused market uncertainty, so the outlook for gold is positive in 2017.
Q: How will rate hikes in the US impact on the gold price?
GMS: Right now the US financial markets are anticipating a more aggressive stance on the normalisation of interest rates. Frankly I don’t agree. What we are seeing is just noise in the aftermath of the election. It can take months for that noise to go away. I am not expecting the Fed to move from its gradual normalisation, even though the markets right now are contradictory.
Q: Who is buying gold ETFs?
GMS: We’ve seen some very strong inflows, that’s absolutely true. What we are seeing is both institutional and individual investors re-establishing strategic allocations that have dwindled down to a low or dangerous level, or establishing a strategic gold allocation for the first time. That is what’s driving the inflows into gold ETFs.
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