Future of gold
In this author’s opinion, the value of gold is not necessarily reflected in the current price. The problem with this piece of information is the market can remain unbalanced or illogical far longer than most of us can remain liquid. The current price of $1655 is roughly the average price of the last two years, although there have been big drops and rallies interspersed over that same time.
The two biggest factors going forward this year are: when and how many interest rate increases are we going to see from the U.S. Federal Reserve.
There is a general consensus two-rate increases are possible in the U.S. this year. If rates go up in the U.S., the dollar rises with downward pressure on the price of gold as a result. This trading environment has existed since the U.S. raised rates last year. The results are obvious: global money pours into the U.S. from abroad as foreign investors buy trillions of U.S. dollars. This money, generally, goes to the stock market.
It’s been all-time high after all-time high this year. Gold does not attract very much interest or investment in this type of environment except from central banks. The simple explanation for this is the possible in-stock returns are too great to ignore. Gold suffers from neglect and is easily ignored. When something is ignored in the investment world it doesn’t trade higher and may, in fact, be sold.
If U.S. rates do go higher this year, then a sharp rise in the dollar can be expected. Gold has been priced for at least one rise already.
The other factor is the geopolitical risks in the world today. There are numerous elections taking place in European countries such as France, Holland, Italy, and Germany. Any of these elections could have a material impact on the price of gold. All of the risks in elections present positive risk sentiment for gold. If the Brexit and U.S. elections are indicative of voter sentiment, then we shall see some interesting possibilities emerge—gold may continue to rise.
I believe we shall see gold prices rise in 2017, accelerating in the second half because of geopolitical risks. In Canadian terms, with a strong U.S. dollar, we will see Canadian trading back along the $1.38-$1.40 range as our own interest rate policy shall lag the U.S. Federal Reserve. Furthermore, I believe the Organization of the Petroleum Economic Countries (OPEC) agreement limiting oil production is at best a very long shot, and more realistically, has no chance of being maintained. This leads me to predict a test of $1800. A test of US$1364 would bring us back to the potential of a bull market in metals should that level be breached.
Lastly, as a reminder, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) has begun to audit dealers in precious metals and stones (DPMS) with more regularity. Make sure your anti-money laundering (AML) and anti- terrorist financing (ATF) regimes are up to date, and follow your industry association guidelines.
Dino Vannicola has been a chief trader of foreign exchange and precious metals for nearly 30 years. As a young man he discovered his love for trading after visiting the main vault at Guardian Trust in Old Montreal shortly after being hired, and has never looked back. Today, Vannicola is the president of Guardian Gold. He can be reached at dino@guardiangold.com.
