Gold Price Forecast: Factors To Watch In 2017

Friday, January 6, 2017

fine gold

Where is gold’s price headed in 2017? It’s a simple question with a complicated answer. To make sense of it, let’s review some of the most important factors on the price of gold this year:

Factor #1: Interest Rates

Interest rates might not have the effect on gold you might imagine. Anyone watching the history of the price of gold against the history of interest rates will not see a 1:1 correlation. Interest rates, after all, have been kept at zero for the better part of the Obama administration, while gold’s price has shown much more fluctuation.

Even so, Federal Reserve policy necessarily has an enormous impact on the economy. It’s important to keep in mind the context of current interest rates; they’re still very far down on the scale, lower even than when rates have been slashed during crashes of the past. Even three interest rate hikes in 2017, as some predict, may not bring interest rates back to pre-2008 levels.

CommodityTradeMantra.com asks investors to consider the disparity in central bank policy as one of their factors to watch in 2017, which might move capital between countries.

Factor #2: The Strength of the US Dollar

This is always a strong factor in the price of gold —and maybe the strongest factor, given that the precious metal is denominated in U.S. dollars. The stronger your dollar is, the more gold it can buy, leading to lower gold prices.

In 2017, tighter fiscal policy might lead to a stronger dollar, especially when paired with higher confidence—assuming that the confidence left over from November’s presidential election has staying power. But whether or not you buy this assumption is more a matter of personal opinion than accurate forecast.

Factor #3: Gold Demand

Is gold demand going to soar in 2017 thanks to demand from…central banks? Central banks have been buying more gold than you might expect. Although central banks are sometimes seen as the enemy of gold—their goal is stable and valuable currency on the home front—some central banks look to buy gold to stabilize themselves against market factors.

It’s unlikely that this will have a large enough effect on gold demand to shoot the prices up, but it certainly bears watching throughout the year.

Factor #4: Investor Confidence

The Dow Jones Industrial Average seems more of an indicator of investor confidence these days than anything else. That may be due to how many mutual funds and index funds the average investor owns. If people buy into the stock market these days, they often buy into large swaths of it.

Investor confidence does keep prices high, with high demand for equities. But investors should be careful as well: confidence can be a fragile thing in the markets, and even though it might push a stock market high, it can just as easily cause it to swing the other way.

Factor #5: The Need For a Hedge

In 2016 gold demand surged thanks to worries about Brexit and the world economy—not to mention low yields in bond prices across the globe. If gold remains a hedge, then the need for a hedge may be the primary factor in its price.

Will people need to flock to gold again in 2017? Early confidence suggests they won’t. But if we know anything about markets, it’s that they’re always unpredictable. 

Also Read:

2017 Price Forecasts For Gold, Silver And Mining Stocks

Silver Price Forecast: Expect Higher Silver Prices In 2017 And Beyond

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Darren Capriotti

Darren Capriotti has been a market analyst for the past decade and is an expert in precious metals. He prides himself on his ability to analyze the market and offer true value to investors with questions about gold, silver, and other precious metals. Highly educated, incredibly passionate, and more accurate than most, Darren offers a true, unbiased look into what investors can expect in the precious metals market. You can reach Darren at dcapriotti@gold-eagle.com.