Gold Price Outlook 2017
Will gold prices rebound in 2017? After declining for years and falling out of favour with investors, gold prices rebounded in the first half of 2016, climbing 23% to around $1,380 per ounce. Gold prices gained ground on fears of a global recession and ongoing uncertainty about how the Brexit vote would impact the economies in both the U.K. and the European Union.It was a different story in the second half of the year where gold prices slipped on improving economic data out of the U.S. Then gold prices took a dive in November after Donald J. Trump won the U.S. election. While gold ended 2016 up 8.5%, it was still a disappointing end of the year for gold bulls.While Wall Street believes gold is dead in 2017, thanks in large part to the belief that President-elect Donald J. Trump’s economic policies will be good for corporate America, there are a huge number of factors that could send gold prices significantly higher in 2017. That’s because precious metals like gold and silver are seen as hedges against economic uncertainty.
These Factors Could Be Bullish for Gold
Gold is a great store of value if cracks in the economy appear and the value of a currency falls. And there are a lot of political and economic reasons why investors could turn their attention back to gold in 2017 in an effort to protect their assets.
U.S. Economy Remains Fragile
The U.S. economy remains fragile, and signs of a U.S. recession in 2017 could send investors flocking back into precious metals like gold. U.S. unemployment is just 4.7%, but the vast majority of new jobs being created are low-paying, part-time jobs. The participation rate is near all-time lows, and the underemployment rate is at 9.6%.1
On top of that, household debt levels are way up: the average U.S. household owes $132,529. The average U.S. household also owes $16,061 in credit card debt, up 10% from 2006 with the average family paying $1,292 annually on interest charges. That number is expected to top $1,300 in 2017 after the Federal Reserve voted to hike its key lending rate.2
U.S. Stocks Overvalued
Nothing sends investors back into gold like a stock market crash or correction. In early 2016, stocks plunged and gold soared. Gold is poised to make another run in 2017 as stock valuations hit nose bleed levels.According to the most reliable indicator on stock market valuations, stocks that make up the S&P 500 are overvalued by 76%. The Case Shiller CAPE (cyclically adjusted P/E) ratio currently stands at 28.2 times average earnings; the 10-year average is around 16. The ratio has only stayed higher for longer twice: in 2000 and 2007. Stocks crashed both times.3
Investors sought safety in gold in 2016 on the heels of cooling global economic conditions at the beginning of 2016 and in June following the Brexit vote. What events could send investors back into gold in 2017?For starters, unexpected outcomes in Hong Kong’s Chief Executive Election in March, France’s Presidential Election this spring, and Germany’s Federal Election in October. Gold prices could also increase on rising tensions between the U.S. and Russia, the U.S. and China, and the U.S. and North Korea. Donald J. Trump’s protectionary policies could erupt into a trade war with China and Mexico.Internationally, Russia could move further into Ukraine, and North Korea could rattle its sabres by testing an intercontinental ballistic missile, which could, in theory, reach the U.S. Ongoing tensions in the Middle East could also send gold prices higher.
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- “Employment Situation December 2016,” Bureau of Labor Statistics, January 6, 2017; https://www.bls.gov/news.release/empsit.nr0.htm.
- “The Average U.S. Household Owes More Than $16,000 in Credit Card Debt,” Money, December 20, 2016; http://time.com/money/4607838/household-credit-card-debt/.
- “Case Shiller P/E Ratio,” Yale University Department of Economics, last accessed January 9, 2017; http://www.econ.yale.edu/~shiller/data.htm.