Market and product

Unsurprisingly, 2016 was a volatile year for the gold market. At the start of the year, analysts were all over the map on the 2016 gold price; predictions were as high as $1,382 per ounce, while others projected the price would fall lower than $1,000 an ounce.

On the contrary, the gold price had a strong start to the year, rising to $1,237.90 per ounce before March. By July, the yellow metal had soared to $1,365.40 per ounce, following the Brexit decision in June. Since then, the gold price has dropped off drastically–despite a momentary spike during the US election–trading at $1,132.50 per ounce on December 20, 2016.

2016 gold themes: politics, US dollar and inflation

Indeed, it’s impossible to talk about the gold price without mentioning the implications Brexit placed on it or, more recently, the US election.

Rannestad elaborated by saying Britain’s decision to leave the European Union and the election of Donald Trump as president “lead to increased uncertainty” in the market.

However, in speaking with INN, Morgan commented that the outcome of the US election wouldn’t particularly impact the precious metals sector.

While that could certainly be the case long term, the gold price did substantially fall off in the days following the election, even dropping to nine-month lows.

Nichols agreed with Rannestad, commenting that Trump’s victory had huge implications on the gold market, and the resource sector in general.

“His statements over the course of his campaign were all contradictory so we don’t really know where he stands on a lot of issues,” he noted.

In that regard, Nichols said he was surprised the failure of inflation didn’t push the gold price as much as he expected it would in 2016.

“I was much more bullish in the market,” he told INN of his thoughts on the gold market in 2016. “I was surprised by the failure of gold to move substantially higher.”

Relatedly, Nichols pointed out that many people look at interest rates as a key to the gold price. Instead, he said it’s the real interest rate that should be considered.

Gold outlook 2017: surprising price increase?

Moving into 2017, gold is expected to move much higher, Nichols added. Specifically, he said there’s going to be a “surprising gold price increase” that could come within striking distance of its historic highs later in the year, based on monetary policies.

To that end, however, Yaremchuk said the statistical and technical indicators he follows suggest that gold was getting overbought and that it was due for a correction. Yaremchuk said one key indicator is the moving average of convergence/divergence, which is also known as MACD, and on a weekly basis the MACD and RSIR are indicating that the next move for gold will be up.

Over the last five years, the gold price has more or less been stuck in a bear market. Yaremchuk noted once the bear market runs its course, and if it is indeed at the end of a bear market and the beginning of a new bull market, then it goes in three stages.

The first stage, he said, is an accumulation stage, the second stage sees more mainstream investment, when gold companies start performing well, and a correction stage. The third stage is usually “the strongest move of a bull market.” On that note, Yaremchuk said it looks the industry has just finished phase one of that stage and is making its way to stage two.

“If this turns out to just a correction stage after stage one, then we’re going to see higher highs,” Yaremchuk said.

Morgan agreed that gold prices will rise in 2017, noting that he is “more favorable” to a longer consolidation period.

“2017 will definitely see a lift throughout the year,” he said. “It won’t be straight up, ebb and flow, but will overall be higher in 2017 than 2016.”

Of course, there will be contributing factors for the yellow metal to see a spike: importantly, Nichols noted, one thing that will be a driving force is demand from China and India.

“Both countries have significant cultural and social affinity to holding gold as form of investment and savings by many people in both countries but for different reasons,” he said. “We think that’s going to continue.”

In that regard, Nichols stated that gold that goes to China and India is unlikely to come out again in any perceivable time frame, suggesting that this is a reduction in what he calls the “availables via gold that is available in the market place.” When westerners get revved up again about gold and there’s an adequate supply, there’ll be higher gold prices, Nichols said.

“The panics of the gold market rely importantly on the idea that Asia is going to be a continuing buyer of gold,” he added. “That gold is very likely to get some strong hands and isn’t likely to come out except at much higher prices.”

In terms of where the gold price will land next year predictions, of course, vary. Citi Research sees the gold price falling to $1,135 per ounce in the second quarter, but rising up to $1,180 per ounce in the last three months of 2017.

Yaremchuk said it could range between $1,200 and $1,400, but it might not be until 2018 that it “gets some serious momentum” and starts challenging previous highs, and to not expect much higher than $1,400 an ounce. He added it wouldn’t surprise him if it reached his highest prediction of $1,500 per ounce, but he’s certainly not expecting it to reach quite that high.

“My gut says we continue to work our way higher in 2017, and trade in a range somewhere in the $1,225-$1,400 per ounce range for the year,” he said.

Some higher predictions include Jeffrey Christian’s, managing partner of the CPM Group, who told the Northern Miner (subscription) that he expects gold to average $1,325 per ounce next year before increasing significantly beyond 2017. Scotiabank is also optimistic about the gold price, forecasting it will average $1,300 an ounce in 2017, while Societe Generale(EPA:GLE) is also calling for a $1,300 per ounce average in 2017. The panel over at FocusEconomics expects the yellow metal to average slightly lower, at $1,297 per ounce next year.

However, not everyone is bullish on gold making strides in 2017. For example, ABN Amro Group (AMS:ABN) suggests the gold price will fall to $1,100 an ounce by the end of next year, with a price recovery coming in 2018. Chris Beauchamp, head of market analysis at IG Group, expects gold to go lower than that, saying it could end up below $1,000 an ounce before the end of 2017.

Investor takeaway: gold thrives on uncertainty

Looking ahead, Nichols said investors should look from technical standpoint gold’s ability to establish itself higher than it has in the last year or two. He noted there’s been heavy resistance in its price late in 2016, but if it can break through from there, Nichols said he thinks it will make a big difference to investor perceptions about gold’s ability to move higher.

“It’s pretty firm what needs to be broken psychologically for gold to really take off,” he added.

As we all know, markets are volatile and investors flock to precious metals like gold as a safe haven asset, and Nichols said there’s going to be a lot of uncertainty as Trump’s administration takes form. With that in mind, those in the gold market will no doubt be curious to see how 2017 unfolds, and how a Trump presidency will impact its price.