Gold price outlook for 2017: More pain before recovery
New York (Jan 9) After a spectacular rally that topped the $1,375-mark, gold closed flat in 2016. The metal trades at $1,178/ounce now. All risk assets — equity, the US treasury and crude — have been moving up strongly since Donald Trump’s win (in November) in the US election, an indication of the market’s optimism. Investors are confident that the US economy will get better in 2017. Trump has promised major stimulus through investments in infrastructure and corporate tax rate cut. Further, as the Federal Reserve has promised more rate hikes this year, the yellow metal is not an appealing investment.
Gold is an asset that performs when the fear trade is high and investors want to park money in a safe haven.
However, after the first quarter of the year, there are chances that the metal may look up again. The first series of elections starts in Europe with the Netherlands going for polls by mid-March (France in April and Germany in October). Also, as the process starts for Britain’s exit from the European Union, risk trade will start again and demand for safe havens will go up. In July last year, post-Brexit, as tension gripped investors, both dollar and gold moved up in tandem. Gold prices will also take cues from Fed’s moves. If Trump’s protectionist policies spoil US’ trade relations with other countries and economic growth crimps, it may get difficult for the Fed to keep its word on rate hikes, which is a positive for the yellow metal. If you recollect, last year, the Fed promised four hikes but delivered only one.
Indian gold consumers may have to watch out for the rupee. The outlook for the currency vis-a-vis USD is bearish. So, even if gold prices decline in the international market in the next three months, the fall may not be much in rupee terms. However, if there is a cut on import duty on gold in the Budget, that may offer some relief.
Technically
Gold prices look weak on the charts too. In the short term, i.e, over the next three months, prices can be very volatile and move range-bound with a downside pressure. In this period, they can test lows of $1,120. If selling pressure continues, the metal may even sink to $1,100-1,080 levels – the 2015 low, and bottom out. The upside target from this point will be $1,250-1,280. However, we will do a mid-year review to revisit targets.
What you should do
Short-term traders in gold need to be cautious as prices may fall more in the next three to four months. However, the fundamentals for gold are still good with many countries across the world still continuing monetary easing, presenting a ‘buy’ argument for the metal. We suggest you hold 10 per cent of your portfolio in gold to diversify from the risks of equity investment. Sovereign gold bond is the best route for Indian investors to invest in the yellow metal.
Source: BusinessLine
