2017 Price Forecasts For Gold, Silver And Mining Stocks
The gold price was on a crazy roller-coaster ride during 2016. Gold bugs were ecstatic during the first half of the year, as gold finally rallied strongly after a 4-year correction. It was a fierce rally to be sure, as the price advanced from $1,045 to $1,377 in the course of just six months. This was a gain of $332 or 32%!
However, the rally fizzled out starting in August and the gold price slid all the way back to $1,124 by mid-December. Demonstrating its extreme volatility, the gold price corrected $250 from the July high and gave back 75% of the gain realized during the first half of the year.
The last time that gold rallied with such force was in 2011, when it climbed from $1,350 t0 its all-time high at $1,923 per ounce. That represented a 42% advance in roughly six months and was followed by the 4-year correction that most likely ended in late 2015.
As you can see from the chart, the gold price appears to have bottomed and bounced this week back above $1,150. It still has plenty of work ahead to confirm the bottom, but the bounce has certainly been encouraging. I will be looking for gold to climb above $1,200 over the next few weeks to return to confirm our bullish short-term outlook.
The silver price also enjoyed a massive rally during the first half of 2016. It shot up from a low of $13.62 to $21.23 in just over six months. This was good for a gain of $7.60 or 56%!
Unfortunately, silver also suffered a sharp correction like gold and retreated from over $21 in July to under $16 by December. This equates to a 73% retracement of the H1 2016 gain. The silver price has since bounced back above $16, but needs to climb back above $18 to confirm that we have seen the worst of the current correction.
Mining stocks offered strong leverage to the gains in gold and silver as usual. The Market Vectors Gold Miners ETF (GDX) was up over 155% during the first half of the year, roughly 5 times the gain in gold and more than double the gain in silver. The GDX also gave back 73% of those gains before bouncing strongly in the past week.
It is notable that the GDX has led gold higher and offered stronger-than usual leverage over the past week. While gold advanced by 2% this week, the GDX rocketed nearly 10% higher for leverage of 5X! Investors are clearly banking on a rally in precious metals over the next few months and taking early positions in oversold mining stocks hoping for a repeat of the gains realized in the first half of 2016.
Price Targets For Gold, Silver And GDX In 2017
It is my view that the current correction in precious metals in overdone. Expectations that President-elect Trump will suddenly fix the markets, return to strong growth and thus make the risk-on trade attractive are misplaced. This optimism, along with the recent rate hike and dollar strength has led to the rout in gold and silver. But it is not justified.
Even if Trump follows through on his campaign promises, which few Presidents ever do, it will take well over a year to enact these new policies and see any benefits. And his ability to impact the economy is more limited than investors think. Unless he dismantles the FED, which would be nice to see, central bankers will still have a great deal of control over the economy and our monetary system.
Furthermore, Trump has been critical of the FED and supportive of gold as money. He has accepted gold in place of cash for deposits on his properties in New York and has appointed several pro-gold economic advisors in the past month. This doesn't necessarily equate to a new gold standard and end to the price suppression. However, even small gestures highlighting the positives aspects of gold could have a big impact on the price.
Lastly, if Trump reduces taxes and increases spending on infrastructure and other initiatives, the US debt is going to balloon much higher. This is bullish for gold and bearish for the US dollar Index.
Speaking of the dollar, the current rally is looking long in the tooth with the USD Index at its highest level since 2002. The FED hiking the Federal Funds Rate by 25 basis points from a 0.5% to 0.75% range is barely moving the needle and doesn't justify the 10% jump in the USD Index over the past few months to multi-year highs. Interest rates are still near record lows and would need to go up by a factor of roughly 10 times just to hit the median rate of the past 50 years.
Internationally, the dollar is slowly losing its status as world reserve currency. A growing number of countries are opting to trade in local currencies and bypass the dollar, something that we have not seen in decades. The BRICS nations in particular are building economic alliances, signing trade deals and creating alternative banking systems outside of the US dollar. Trump's election is not going to change this trajectory in my opinion. Therefore, I fully expect the dollar rally to fizzle and the USD Index to slide lower in 2017. This will be a major catalyst for the next advance in gold and silver prices.
Of course, there are many other factors that impact commodity prices. While it is very difficult to forecast prices with a high level of accuracy, here is my expectation for 2017:
- The gold price will climb to a minimum of $1,500 during 2017 and could challenge the 2011 high and push above $1,900 by year end in the event of a financial crisis, major military conflict or other black swan event.
- Silver will lead gold higher and benefit from increased industrial usage. The silver price will eclipse the 2016 high of $21.23 and could climb towards $30 by year end.
- The GDX will continue offering strong leverage to the move in the gold price as investors pour into oversold and undervalued mining stocks. The price will double during 2017 from $20 to $50 per share or higher. GDXJ (Junior Gold Miners ETF) will outperform as the majors are hungry to replenish resources and acquisition activity increases. I expect the share price of GDXJ to increase by a minimum of 2.5 times from $30 to $75 per share.
In summary, I believe that gold and silver prices bottomed in late 2015 - and that 2016 will mark the beginning of a new major upleg. A significant correction makes sense given the huge run during the first half of the year, but it is now overdone and the sector has likely bottomed. The winter season is typically a very strong time of year for precious metals. Consequently, I expect a major rally during the first three months of 2017. Those that buy the current dip are likely to be rewarded handsomely in the months and years ahead as currency wars heat up, debt loads skyrocket and people continue to lose faith in central bank fiat money.
We advocate holding physical metals in your possession first and foremost. Leveraged returns from mining stocks allow us to periodically take profits and add to our physical position. This increases the rate that one can accumulate physical precious metals over time.
The GSB model portfolio generated gains in excess of 70% during 2016. Subsequently, we expect an even stronger year in 2017. You can view all of our top gold and silver stock picks, get our trade alerts whenever we are buying or selling and the top-rated Gold Contrarian Report for less than $1 per day by clicking here. Gold Eagle readers can take 20% OFF subscription prices by using the coupon code EAGLE17 during checkout!
Happy New Year and I wish you health, wealth and prosperity in 2017 and beyond!