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General Precious Metals
Gold Outlook 2018: Watch the Fed, Debt and Geopolitics
Although it’s up over 9 percent so far this year, the gold price didn’t perform as well as many predicted. In Q3, the yellow metal broke the $1,300-per-ounce-mark, but it couldn’t sustain that level for very long.
Political uncertainty, worldwide tensions and a softer US dollar supported prices, while risk appetite and a hawkish tone from the US Federal Reserve offset gains. As of Thursday (December 14), gold was trading at $1,253.21.
With the start of 2018 just around the corner, many investors are now wondering what will happen to gold next year. Here the Investing News Network looks at gold’s price performance in 2017 and what analysts believe is ahead for the yellow metal in 2018.
Gold outlook 2018: Price performance review
It comes as no surprise that the gold price performed with volatility in 2017. Even so, prices have nevertheless increased since the beginning of the year.
As the chart below from Kitco shows, the gold price reached its yearly peak in September, when it reached $1,346. At the time, tensions were escalating rapidly between North Korea and the US, turning investors to safe-haven assets such as gold. A weaker US dollar also supported prices.
Gold’s price performance from January 1, 2017 to December 14, 2017. Chart via Kitco.
In contrast, gold’s lowest point of the year came in January, when it was changing hands for $1,150.90 due to a higher US dollar. A stronger greenback tends to make assets pegged to the currency more expensive to buyers using other monetary units.
Some market participants were expecting gold prices to increase more than they did, including Rob McEwen of McEwen Mining (TSX:MUX,NYSE:MUX), who was expecting gold to move higher this year. “I didn’t anticipate how strongly the broad market would move based on expectations that US President Donald Trump’s policies would be passed,” he said.
Similarly, Brien Lundin, CEO of Jefferson Financial and editor of Gold Newsletter, was expecting to see more of what was seen in 2016; instead gold has been performing in a “kind of a stairstep fashion.”
Rick Rule of Sprott US Holdings commented that he has been satisfied with the performance of gold this year. “Gold usually mirrors a lack of confidence, and [people have been very confident in the global economy]. The fact that gold has done well during a time with minimal turbulence says that gold has performed its job in terms of maintaining or increasing people’s purchasing power,” he noted.
Frank Holmes of US Global Investors (NASDAQ:GROW) also believes bullion has been doing well this year. “What really took it on the chin for the gold stocks was the push to go into the GDXJ (ARCA:GDXJ),” which captures 95 percent of all gold equity fund flows.
“The gold stocks have been really [downtrodden] — and a lot of people don’t understand that really it has to do with the GDXJ’s success,” he added.
On the same note, Adrian Day of Adrian Day Asset Management said gold stocks are “incredibly depressed,” explaining that “if gold is cheap relative to the financial assets … gold stocks are even cheaper because they’re cheap relative to gold on a fundamental basis, on a price basis.”
Junior Stock Review founder Brien Leni agreed, saying he was expecting to see a rebound in gold stocks prior to 2018, but “the emergence of cryptocurrencies and blockchain have taken center stage in 2017.”
Indeed, the cryptocurrency vs. gold debate has been a key trend this year, as bitcoin has outperformed the yellow metal. However, most gold market participants agree that the assets don’t compete with each other and are not comparable.
Rule commented, “I’m a fan of cryptocurrencies … [but] I think ultimately that the cryptocurrencies and gold serve a very, very different purpose, and I see them as being complementary, not competitive.”
Meanwhile, Holmes said he doesn’t think bitcoin is dismantling gold, but it’s “waking up the world on blockchain technology — the ability to send transactions inexpensively, no counterfeits [and] decentralized around the world in 10 minutes.”
Gold outlook 2018: Key factors and price predictions
The year has been full of political turmoil, with investors turning to safe-haven assets on escalating geopolitical tensions. But what will happen to the gold price in 2018?
In the longer term, Lundin believes a gold price rise is inevitable. Why? “The easy answer is debt,” he explained. “The debt load in the US is over $20 trillion. If it performs to past form, by the time Donald Trump gets out of office, it should be about $40 trillion — the record has shown that federal debt has doubled during every eight-year term of the president recently, so it’s growing. At this level it’s too large to be handled by tax hikes, spending cuts, growth.”
Similarly, David Morgan of the Morgan Report said debt remains a major issue that could impact precious metals going forward. “I think 2018 is when [the debt bomb] is going to be noticed — maybe out of the corner of your eye kind of thing — and then it’s going to become more and more apparent as we march through 2018,” he said.
Another key factor to consider moving forward is the Fed’s monetary policy. The central bank decided midway through December to hike interest rates for the third time in 2017, and market watchers are expecting at least three more rate increases in 2018.
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