Best of the Week
Most Popular
1. Five Charts That Show We Are on the Brink of an Unthinkable Financial Crisis- John_Mauldin
2.Bitcoin Parabolic Mania - Zeal_LLC
3.Bitcoin Doesn’t Exist – 2 - Raul_I_Meijer
4.Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - Nadeem_Walayat
5.Labour Sheffield City Council Election Panic Could Prompt Suspension of Tree Felling's Private Security - N_Walayat
6.War on Gold Intensifies: It Betrays the Elitists’ Panic and Augurs Their Coming Defeat Part2 - Stewart_Dougherty
7.How High Will Gold Go? - Harry_Dent
8.Bitcoin Doesn’t Exist – Forks and Mad Max - Raul_I_Meijer
9.UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - GoldCore
10.New EU Rules For Cross-Border Cash, Gold Bullion Movements - GoldCore
Last 7 days
Stock Index Trend Trade Setups for the SP500 & NASDAQ - 22nd Jan 18
Stock Market Deceleration / Distribution - 22nd Jan 18
US Markets vs Govt Shutdown: Stock Markets at all time highs - 22nd Jan 18
Land Rover Discovery Sport - 1 Month Driving Test Review - 22nd Jan 18
Why should you use high-quality YouTube to mp3 converter? - 22nd Jan 18
Silver As Strategic Metal: Why Its Price Will Soar - 21st Jan 18
Stocks, Gold and Interest Rates Three Amigos Ride On - 21st Jan 18
Why Sometimes, "Beating the S&P 500" Isn't Good Enough - 21st Jan 18
Bunnies and Geckos of Sheffield Street Tree Fellings Protests Explained - 21st Jan 18
Jim Rickards: Next Financial Panic Will Be the Biggest of All, with Only One Place to Turn… - 20th Jan 18
Macro Trend Changes for Gold in 2018 and Beyond - Empire Club of Canada - 20th Jan 18
Top 5 Trader Information Sources for Timely, Successful Investing - 20th Jan 18
Bond Market Bear Creating Gold Bull Market - 19th Jan 18
Gold Stocks GDX $25 Breakout on Earnings - 19th Jan 18
SPX is Higher But No Breakout - 19th Jan 18
Game Changer for Bitcoin - 19th Jan 18
Upside Risk for Gold in 2018 - 19th Jan 18
Money Minute - A 60-second snapshot of the UK Economy - 19th Jan 18
Discovery Sport Real MPG Fuel Economy Vs Land Rover 53.3 MPG Sales Pitch - 19th Jan 18
For Americans Buying Gold and Silver: Still a Big U.S. Pricing Advantage - 19th Jan 18
5 Maps And Charts That Predict Geopolitical Trends In 2018 - 19th Jan 18
North Korean Quagmire: Part 2. Bombing, Nuclear Threats, and Resolution - 19th Jan 18
Complete Guide On Forex Trading Market - 19th Jan 18
Bitcoin Crash Sees Flight To Physical Gold Coins and Bars - 18th Jan 18
The Interest Rates Are What Matter In This Market - 18th Jan 18
Crude Oil Sweat, Blood and Tears - 18th Jan 18
Land Rover Discovery Sport - Week 3 HSE Black Test Review - 18th Jan 18
The North Korea Quagmire: Part 1, A Contest of Colonialism and Communism - 18th Jan 18
Understand Currency Trade and Make Plenty of Money - 18th Jan 18
Bitcoin Price Crash Below $10,000. What's Next? We have answers… - 18th Jan 18
How to Trade Gold During Second Half of January, Daily Cycle Prediction - 18th Jan 18
More U.S. States Are Knocking Down Gold & Silver Barriers - 18th Jan 18
5 Economic Predictions for 2018 - 18th Jan 18
Land Rover Discovery Sport - What You Need to Know Before Buying - Owning Week 2 - 17th Jan 18
Bitcoin and Stock Prices, Both Symptoms of Speculative Extremes! - 17th Jan 18
So That’s What Stock Market Volatility Looks Like - 17th Jan 18
Tips On Choosing the Right Forex Dealer - 17th Jan 18
Crude Oil is Starting 2018 Strong but there's Undeniable Risk to the Downside - 16th Jan 18
SPX, NDX, INDU and RUT Stock Indices all at Resistance Levels - 16th Jan 18
Silver Prices To Surge – JP Morgan Has Acquired A “Massive Quantity of Physical Silver” - 16th Jan 18
Carillion Bankruptcy and the PFI Sector Spiraling Costs Crisis, Amey, G4S, Balfour Beatty, Serco.... - 16th Jan 18
Artificial Intelligence - Extermination of Humanity - 16th Jan 18
Carillion Goes Bust, as Government Refuses to Bailout PFI Contractors Debt and Pensions Liabilities - 15th Jan 18
What Really Happens in Iran?  - 15th Jan 18
Stock Market Near an Intermediate Top? - 15th Jan 18
The Key Economic Indicator You Should Watch in 2018 - 15th Jan 18
London Property Market Crash Looms As Prices Drop To 2 1/2 Year Low - 15th Jan 18
Some Fascinating Stock Market Fibonacci Relationships... - 15th Jan 18
How to Know If This Stock Market Rally Will Continue for Two More Months? - 14th Jan 18
Everything SMIGGLE from Pencil Cases to Water Bottles, Pens and Springs! - 14th Jan 18
Land Rover Discovery Sport Very Bad MPG Fuel Economy! Real Owner's Review - 14th Jan 18

Market Oracle FREE Newsletter

6 Critical Money Making Rules

Macroeconomic Outlook for 2018 and Gold

Commodities / Gold and Silver 2018 Jan 12, 2018 - 02:39 PM GMT

By: Arkadiusz_Sieron

Commodities

Luckily or not, 2017 is behind us. It was a positive year for the gold market, as the yellow market gained more than 12 percent. However, investors are forward-looking, so let’s focus on what the coming months will bring. The next year will be shaped mostly by the following broad economic trends:

1. Global activity is improving.
2. Labor markets are strengthening further.
3. Subdued inflation is finally rising (but moderately).
4. Central banks are slowly reducing their monetary policy stimulus.
5. Interest rates are rising.


Let’s analyze them now, starting with the accelerating global growth. In 2017, the global real GDP grew by about 3.7 percent. It was higher than in 2016 and significantly above the expectations. Indeed, the world economy is outperforming most predictions for the first time since 2010. And, according to the Goldman Sachs, the world’s real economic activity may rise by even 4 percent next year. Importantly, the global growth is broad-based across countries. Gold is a safe-haven asset, which shines the brightest during periods of economic malaise, such as Great Recession. Hence, the solid economic growth likely to occur next year will be a serious headwind for the yellow metal.

With relatively strong economic momentum, the labor markets should strengthen further. In several developed countries, including the U.S., the unemployment rate has already fallen to the pre-crisis level (see the chart below). The advanced economies are thus near full employment, with quickly closing output gaps.

Chart 1: The unemployment rate (red line, right axis) and the inflation rate (CPI, green axis, left axis) in the U.S. over the last ten years.


Hence, the flourishing economy and the tightening labor market should finally raise inflation. Actually, inflation is significantly higher than two years ago, as one can see in the chart above.

Gold is perceived to be a hedge against inflation, but a moderate increase in the CPI or the PCEPI should not boost the price of the yellow metal. Gold shines brightly during periods of high and accelerating inflation, so unless inflation gets out of control, significantly exceeding the Fed’s target, it should not rally madly. However, we cannot exclude inflation rearing its ugly head again. Actually, this is one of the biggest upside risks for the gold market in the medium-term.

Indeed, the rebound in inflation may actually encourage the central banks to adopt a more hawkish stance. This is what has been happening recently. The Fed hiked interest rates five times since the end of 2015. It also started to unwind its enormous balance sheet. And even the ECB reduced the scale of its monthly asset purchases last year. Additionally, the composition of the FOMC in 2018 will be more hawkish, so we expect a continuation of policy normalization. The tightening will be gradual, for sure, but three hikes are not unlikely next year. Or they may come earlier, as the U.S. central bank has fewer reasons than in 2017 to pause the rate hike cycle at the beginning of a new year. Tighter monetary policies and less accommodation imply higher interest rates, which is negative for gold, a zero-income asset.

Importantly, there might be also an upward pressure on the real interest rates, due to the solid economic growth and rising expectations of the fiscal policy stimulus. This is of great significance, as gold has a strong negative correlation with real interest rates.

The implications of the upcoming economic trends are not good for the gold market. We predict that the global recovery will continue, so we will have basically solid economic growth with low inflation, and balanced risks in the global economy. Thus, the macroeconomic environment is likely to exert downward pressure on the yellow metal. It does not mean that we expect a plunge in gold prices, but we simply consider a bear market to be more probable than the bull market. Surely, if the goldilocks economy remains in place, the sideways trend in the bullion market may continue. What we are saying that the downward move is more likely due to the solid economic momentum and rising interest rates.

But a lot will depend on the performance of the U.S. dollar. In 2017, the price of gold was supported by the depreciation of the greenback. We believe that a similar sell off is unlikely this year, so there is a more room for declines in gold prices, at least in the short or medium term.

Last but not least, we painted the base scenario above. But future is uncertain and a lot may happen on the way, so it does not need to materialize. If some black swans land, the price of gold may jump. We will analyze the potential upside risks for the gold market in the next part of this edition of the Market Overview.

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