FEATURE OUTLOOK 2017 THE GOLD MARKET
Global economic trends and their impact on gold
A volatile year in 2016 saw the cost of gold soar and many a jeweller turning to alternative precious metals during the design process - this was seen in the 6% fall of hallmarked gold items compared with 2015. In its recent report, the World Gold Council looks at what’s ahead for 2017
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n 2016, investors around the world returned in large numbers to the gold market, as a combination of macroeconomic drivers and pent-up demand
kept interest in gold high. As we move further into the new year, it is believed by some experts that the strength of the US dollar may limit gold’s appeal. However, the World Gold Council (WGC) believes that, on the contrary, not only will gold remain highly relevant as a strategic portfolio component, but also six major trends will support demand for gold throughout 2017. Not good news for jewellers, who have seen the price of their gold shoot up over the last 12 months.
MAJOR TRENDS IN 2017
The gold price had a strong performance in 2016, rising close to 10% in US dollar terms (higher in most other currencies) and amassing multi-year record inflows through physically-backed gold exchange-traded funds (ETFs) - making it one of the best performing assets last year, despite a post-US election pullback. And the price has gained more than 5% since the Federal Reserve (Fed) increased rates in mid-December. But, what does 2017 hold for the gold market?
Using the economic perspective from its guest economists as a backdrop, The World Gold Council believes there are six major trends in the global economy that will support gold demand and influence its performance this year: n Heightened political and geopolitical risks n Currency depreciation n Rising inflation expectations n Inflated stock market valuations n Long-term Asian growth n Opening of new markets
HEIGHTENED POLITICAL AND GEOPOLITICAL RISKS
Political risk is rising. Europe will hold key elections in the Netherlands, France and Germany in 2017. As John Nugée says, the election cycle will happen “against a backdrop of continued citizen unrest, fuelled by the ongoing uneven distribution of economic welfare.” In addition, Britain must negotiate its exit from the European Union (EU).
While the UK economy is still expanding, the pound fell sharply following the referendum decision and continues to weaken every time the markets sense that there is an increased chance of a ‘hard’ Brexit. In the US, there are positive expectations about some of the economic proposals of President-Donald Trump and his team, but there are also concerns. The US dollar has gained ground since Trump swept to victory last November, but uncertainty is rife. Jim O’Sullivan sees “a meaningful risk that negotiations on trade will turn belligerent” and suggests that “confidence in markets could be affected by geopolitical tensions triggered by the new administration”. As a high-quality, liquid asset, gold benefits from safe-haven inflows. Gold is especially effective as a safe haven during of
times systemic crisis, when investors tend to
withdraw from risk assets. As they pull back, gold’s correlation to stocks becomes progressively more negative and its price tends to increase. Gold historically performs better than other high-quality liquid assets during periods of crisis and that makes it an excellent
February 2017 |
jewelleryfocus.co.uk
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Political risk is rising. Europe will hold key elections in the Netherlands, France and Germany in 2017
JEWELLERY FOCUS
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