Gold price rollercoaster — to invest or not to invest

By Stefano Virgilli — The forecast for the 2017 gold prices is quite unoptimistic. There is the possibility that some of the investors might be hopeful on gold, but in reality, the commodity’s instability will most likely have them change their investment strategies and reduce the positive price forecasts.
Even though some of the forecasts are optimistic, gaining hopes that the price will stay at one position and stop decreasing at some point, other forecasts suggest that 2017 will be far worse when it comes to the price of gold and other commodities.
In fact, at this point, platinum and silver also experienced a fall, 1.31 pc to $914.5 per ounce and 1 pc at $15.92 an ounce, respectively.
After keeping a high price for almost a year,  gold experienced a sudden fall, leaving many investors alarmed.
The price was falling for six weeks in a row and officially marked the worst streak in the year. At some period, the prices had fallen to around $1,136 an ounce. The analysis for 2017 is relatively unoptimistic.
According to Mark To’s predictions, the head of research at Hong Kong’s Wing Fung Financial Group, by the start of 2017, the gold could move down to $1,050 or $1,080.
BMO Capital Markets, a Canadian investment bank expects the gold to average $1,175 an ounce in the following year-long period. Their message to investors is clear, “we believe a key element of an investment thesis of the precious metal sector is likely to be absent through most of 2017.”
They “expect the macro outlook to continue to cloud a precious metal strategy, but recognise that the risk is to the upside given our view that markets are already pricing in the impact of three Fed rate hikes in 2017.”
At the early start of 2016, the price of the gold was standing at $1,050 and after two months, turned higher, rising up to 31 per cent. Consequently, the Daily FX, says that “the bullish thesis that drove Gold prices up by 31 per cent in the first half of this year is dying if not already dead-altogether.”
After the Federal Reserve relaxed its outlook for US interest rates, gold’s price kept on rising. In December 2016, the Fed raised the rates for the first time in the year, contributing to the falling price of gold. This decision surprised many investors that had put their hopes on the continual increase that was supposed to be transferred in 2017 as well.
The US elections brought uncertainty as well, as the country being in expectations of the effects of this year’s election result and the president-elect Donald Trump’s influence to the economy. Jonathan Butler, a Mitsubishi Corp strategist told Reuters, “Coming at a time when investors are mindful of the stimulus effects of the new incoming US regime (this) is likely to be good for equity valuation and weigh on gold and risk-off assets, at least in the short term.” Therefore, it is expected for the low prices to have a continuum that will last for a while.
While the gold’s price is falling, the dollar is getting stronger. As gold is sensitive to rising rates, and the Fed forecasted three more increases in 2017, it is possible for the price to decrease even more. A stronger US monetary policy and US dollar will be established. This trend made investors cautious about their future investments. Data by Bloomberg show that investors “pulled $6.2 billion from ETFs tracking precious metals — the largest withdrawal across asset classes. The biggest casualty was SPDR Gold Shares, the top fund backed by bullion.”
The current prices cause losses at major holdings. According to Frances Hudson, Standard Life Investments strategist, “we are starting to see people say, well perhaps gold is a contrarian buy because political risks haven’t gone away.”
In fact, the warnings of the potential risks to the economy are not expected to cease. Mario Draghi, President of the European Central Bank warned about the future impact of Brexit and US elections to the economy, which is yet to be felt. The increase in interest rates would affect countries with debt that are struggling to consolidate their budget.
China and India are known as the top bullion buyers worldwide.
According to People’s Bank of China, for the first time in six months, the country avoided adding to its gold reserves, and imports to India decreased by 43 per cent compared to 2015.
Overall, the analysis shows that 2017 is going to be less successful in keeping a high price of gold. Everything indicates to the structural problems in the economy that affect certain fields in a possibly negative way, requiring major reforms that are more likely to bring a good balance and assure prosperity.