Gold: What's in store for 2017

Before getting into what the current year holds for gold, lets review gold market in 2016. Unlike the bearish market in 2015, 2016 saw some improvement in gold prices. A mixed market could be a one-liner for gold in 2016. Gold price performance can largely be divided into two parts in 2016: An uptrend for the first half, followed by a downtrend in the second.

Overall in 2016, gold prices increased by around 8-9 percent. But looking only at the first half of 2016, one could easily say that This trend of higher highs and higher lows in first half actually began in January after the shiny metal bottomed out at $1049 per ounce, and after the interest rate increase by the Fed in almost a decade. However, after peaking at $1366 immediately post Brexit, the years second half was surprisingly characterized by lower highs and lower lows journey of the gold prices even amid the Brexit and the US presidential uncertainty that engulfed the world economy.

So, what does 2017 mean for the yellow metal. With the advent of 2017, gold prices seem to have gotten out of their bearish mode and have been seen to climb once again. Will this rising trend sustain? Or will gold prices remain tamed? A lot depends on how Trumps policies pan out.

World Gold Council in its latest monthly outlook titled The gold market in 2017 has highlighted that while there are some concerns that US dollar strength might limit golds appeal in 2017, gold will remain highly relevant as a strategic portfolio component. It has also summarized six major trends that will support gold demand throughout 2017 as described below.

First few include heightened political and geopolitical risks in EU, UK and the US and currency depreciation. In such situations, Gold is a high-quality, liquid asset with much safer bets. The report highlights one of its guests contributor saying, Europes economies are likely to face a continuation of the current tight fiscal, expansionary monetary policy as they have for at least the last five years, which will inevitably lead to fears of currency depreciation.

Linked to the same is the rising inflation worldwide. An upward inflationary trend is likely to support demand for gold as gold plays its role as an inflation hedge and an attractive investment.

When it comes to the stock market performance, they have remained elevated in 2016. A likelihood of correction in stock market valuation, the report pinpoints that the golds role as a portfolio diversifier and tail risk hedge is particularly relevant.

Lastly, two other factors linked to markets have the potential to instigate gold demand. these include the long term indigenous growth in Asian markets, and opening up of new markets as gold and gold-backed ETFs become more mainstream.