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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Don’t Look Now, but Gold Just Finished Its Best Year Since 2011

Commodities / Gold and Silver 2018 Jan 05, 2018 - 06:40 AM GMT

By: MoneyMetals

Commodities

Metals investors may have missed it given the gloomy sentiment that plagued markets for much of 2017, but gold just finished its best year since 2011.

Perhaps in a year like the one just passed, 13% gains are simply not inspiring. U.S. stocks finished about 25% higher for the year, and crypto-currencies including Bitcoin left all other asset classes in the dust. Bitcoin gained roughly 1,400%.


Die hard gold bugs enter 2018 waiting for crypto-bugs and stock bulls to see the value of precious metals. Fortunately, precious metals have served reliably both as an inflation hedge and as a safe haven for most of recorded history. It looks less and less probable investors will get through another 12 months while ignoring both inflation and market risk simultaneously.

While other markets were finishing 2017 strong, the U.S. dollar ended the year with a whimper. The dollar fell 10%, its worst performance in more than a decade.

That weakness has yet to manifest itself as price inflation in consumer goods and services. It has instead shown up in asset prices.

Consumers have yet to feel their dollars getting weaker, which may explain much about why a traditional inflation hedge like gold isn’t getting a lot of attention. That may change in the months ahead, particularly if President Donald Trump can add his debt-financed infrastructure spending program to the tax cuts recently passed. Both initiatives represent fiscal stimulus for Main Street, and a shift from Wall Street oriented monetary policy including Quantitative Easing.

Fiscal stimulus programs should contribute to more weakness in the dollar, as deficits and borrowing increase. Yes, the Republican led Congress could insist on spending reductions elsewhere to compensate for tax reduction and infrastructure spending, but only the most naive would consider that a genuine likelihood.

If the dollar loses another 10% in the year ahead, metals ought to be significant beneficiaries – even if most aren’t paying attention to that possibility.

The recent strength in precious metals may be signaling that price inflation is on the way.

The Federal Reserve has been raising the Fed funds rate for more than two years, thus far with very little impact on bond yields and interest rates on consumer loans. When dealing with markets as centrally planned as ours are, anything is possible… in the short term.

Yet, in our view, the most likely alternative to inflation as a driving force in markets over the coming months is asset deflation. If investors aren’t talking about rip roaring asset markets at this time next year, they may be talking about bubbles popping instead. There are certainly a number of bubbly markets, and a near total disregard for risk. That is a potent combination.

Either way, don’t expect the metals markets to go unnoticed in 2018.

By Clint Siegner

MoneyMetals.com

Clint Siegner is a Director at Money Metals Exchange, perhaps the nation's fastest-growing dealer of low-premium precious metals coins, rounds, and bars. Siegner, a graduate of Linfield College in Oregon, puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals' brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

© 2018 Clint Siegner - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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