Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
S&P 500 at Resistance Level, Downward Correction Ahead? - 17th Jan 19
Mauldin: My 2019 Economic Outlook - 17th Jan 19
Macro Could Weaken After US Government Shutdown. What This Means for Stocks - 17th Jan 19
US Stock Market Indexes Reaches Fibonacci Target Zone – Where to Next? - 17th Jan 19
How 2018 Was For The UK Casino Industry - 17th Jan 19
Gold Price – US$700 Or US$7000? - 16th Jan 19
Commodities Are the Right Story for 2019 - 16th Jan 19
Bitcoin Price Wavers - 15th Jan 19
History Shows That “Disruptor Stocks” Will Make You the Most Money in a Bear Market - 15th Jan 19
What Will the Stock Market Do Around Earnings Season - 15th Jan 19
2018-2019 Pop Goes The Debt Bubble - 15th Jan 19
Are Global Stock Markets About To Rally 10 Percent? - 15th Jan 19
Here's something to make you money in 2019 - 15th Jan 19
Theresa May to Lose by Over 200 Votes as Remain MP's Plot Subverting Brexit - 15th Jan 19
Europe is Burning - 14th Jan 19
S&P 500 Bounces Off 2,600, Downward Reversal? - 14th Jan 19
Gold A Rally or a Bull Market? - 14th Jan 19
Gold Stocks, Dollar and Oil Cycle Moves to Profit from in 2019 - 14th Jan 19
How To Profit From The Death Of Las Vegas - 14th Jan 19
Real Reason for Land Rover Crisis is Poor Quality of Build - 14th Jan 19
Stock Market Looking Toppy! - 13th Jan 19
Liquidity, Money Supply, and Insolvency - 13th Jan 19
Top Ten Trends Lead to Gold Price - 13th Jan 19
Silver: A Long Term Perspective - 13th Jan 19
Trump's Impeachment? Watch the Stock Market - 12th Jan 19
Big Silver Move Foreshadowed as Industrial Panic Looms - 12th Jan 19
Gold GDXJ Upside Bests GDX - 12th Jan 19
Devastating Investment Losses Are Coming: What Is Your Advisor Doing About It? - 12th Jan 19
Things to do Before Choosing the Right Credit Card - 12th Jan 19
Japanese Yen Outlook In 2019 - 11th Jan 19
Yield curve suggests that US Recession is near: Trading Setups - 11th Jan 19
How Unrealistic Return Assumptions Are Ruining Your Stocks Portfolio - 10th Jan 19
What’s Next for the US Dollar, Gold, Stocks & Bonds? - 10th Jan 19
America's New Africa Strategy - 10th Jan 19
Gold Mine Production by Country - 10th Jan 19
Gold, Stocks and the Flattening Yield Curve - 10th Jan 19
Silver Price Trend Forecast Target for 2019 - 10th Jan 19

Market Oracle FREE Newsletter

Bitcoin Analysis and Trend Forecast 2019

Four Things We Learned About Gold in 2017

Commodities / Gold and Silver 2017 Dec 30, 2017 - 02:34 PM GMT

By: Arkadiusz_Sieron

Commodities

2017 is almost over. What did we learn about gold during this time?

Gold May Prosper in Good Times

First, gold may shine in unpleasant macroeconomic outlook. Generally, gold performs the best during economic slowdown or turmoil. In 2017, the economic conditions were far from recessionary climate. Global economic growth accelerated and became more synchronized among countries. The U.S. economy performed well, the unemployment rate achieved a record low, while inflation remained subdued. The Fed hiked interest rates three times, while the Republicans managed to pass a tax bill. And the U.S. stock market continued its rally, while the cryptocurrencies experienced a parabolic rise at the end of a year. Does it look like a supporting environment for gold? Not really. However, the price of the yellow metal has risen more than 12 percent in 2017, as one can see in the chart below. Perhaps it’s not very impressive, but not bad given the macroeconomic environment. And much better than a savings account or Treasuries.


Chart 1: Gold prices over the last twelve months.


Gold Is Mostly Tied to the U.S. Dollar

The reason why gold gained more than 12 percent in 2017, despite an unpleasant macroeconomic environment for the precious metals, was a weak greenback. The broad trade-weighted U.S. dollar index fell from 128 to 120, or more than 6 percent. Real interest rates are also an important driver of the price of gold, but the correlation was significantly stronger with the greenback in 2017. And the level of yield of the inflation-protected 10-year Treasuries at the end of the year was similar to the level at the beginning of the year (about 0.5 percent). The conclusion is clear: the decline in the U.S. dollar’s value clearly supported the yellow metal over the last twelve months. It is not surprising given the fact that gold is a bet against the greenback. Hence, the key to gold’s future is the U.S. dollar. We will dig into the outlook for the greenback for 2018 in the upcoming edition of the Market Overview.

Gold Is Not a Perfect Hedge against Geopolitical Risks

2017 was perhaps not very politically turbulent, at least compared with 2016, when markets had to deal with the surprising outcomes of the Brexit referendum and the U.S. presidential election. However, the crisis over the Korean Peninsula revived. For many years, North Korea was a small and fusty country, but in 2017 it became a nuclear power able to threaten the U.S. with a hydrogen bomb. The price of gold reacted to the war of words between President Trump and Kim Jong-un. But the incidents related to North Korea failed to trigger anything but a short-term and limited response in the gold market. Investors should always remember this and do not make long-term investments in gold based on geopolitical risks. In other words, although gold may rise after some unexpected conflicts (especially if they threaten the U.S. economy), but long-term trends in the gold market are shaped by fundamental factors, such as the U.S. dollar’s strength or real interest rates instead of geopolitical threats.

Gold’s Volatility Was Very Low

The volatility of gold has been falling in 2017. As the chart below shows, the CBOE Gold ETF Volatility Index, which measures implied volatility calculated through call and put options, has declined from 16.23 to 10.73 over the year.

Chart 2: CBOE Gold ETF Volatility Index over the last twelve months.


The low volatility in the gold market in 2017 (especially at the end of the year) was not something unusual, but it was a reflection of a general low volatility in the financial markets, partially due to the presence of central banks. Gold prices remained in a narrow trading range, as investors got used to the presidency of Trump and the Fed’s tightening cycle. However, it may be the calm before the storm. The big jump in the price of gold may follow the unusually quiet period in the gold market.

Golden New Year!

For long-term investors, low volatility is generally positive. However, the sideway trend may be discouraging. This is why we wish you a New Year with a more dynamic gold market and many profitable trading opportunities. Let your wealth shine!

Thank you.

If you enjoyed the above analysis and would you like to know more about the gold ETFs and their impact on gold price, we invite you to read the April Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts . If you're not ready to subscribe at this time, we invite you to sign up for our gold newsletter and stay up-to-date with our latest free articles. It's free and you can unsubscribe anytime.

Arkadiusz Sieron
Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Arkadiusz Sieron Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules