Despite Stock Rally, Gold Kicked off 2018 above $1300 and Held on to Gains
In contrast to last year, gold kicked off 2018 above $1300 and held on above $1310 for the first week of 2018. It continued its rally through trading on Friday to end the week just over $1,320. Gold just had its best year in 7 years, and finished 2017 up 13%. After the release of the Federal Open Market Committee meetings on Wednesday, gold eased back slightly, but posted gains through the rest of the week. There was also some profit taking mid week.
The minutes seemed to indicate a more hawkish monetary policy going forward with more interest rate hikes down the road. Often hikes depress metals prices, however the past few have boosted them. Another factor this week that might have weighed on gold prices was the Dow rally to a record 25,000. Gold continued to rally regardless though.
What this means for investors: A weak dollar index is one of the things supporting gold prices right now. In fact, the dollar is at a 3-month low this week. Confidence in the stock market is still high right now, but gold is rallying regardless. Optimism is still high after the tax reform plan, but buyers are growing wary about overvaluation.
2018 Looks Bullish for Silver
Silver is on a rally as well. The World Gold Council recently predicted that gold will continue its climb in 2018, and it looks like silver could as well. Silver’s performance for 2017 was less than gold, but the technicals indicate a stronger rally could be coming. The white metal bottomed in mid-December and is now up 10%. Last week it closed above the trend-line resistance from September and is now poised to break out above the 200 day moving average.
What this means for investors: Additionally, many of the same factors that affect gold (dollar index, geopolitics, interest rates, etc.) affect silver. There is already a bullish case for gold, so that means silver will go up as well.
So What is Going to be Driving Metals This Year?
Things to look at this year that could drive metals up or down:
The direction of monetary policy could lead to a pull back in metals prices, although it doesn’t seem to be the pattern right now. The new Fed chair is indicating a more hawkish tone than Janet Yellen, but too fast of a rate will destabilize growth.
This is always a big driver for gold prices. Tensions with Iran are increasing, North Korea continues bellicose rhetoric and missile tests, Saudi Arabia is experiencing a power re-alignment, and the global community is at odds over President Trump’s acknowledgement of the capital status of Jerusalem in Israel.
There is strong global demand for gold. China, the world’s largest, had gold demand increase 40% in 2017. India, the number 2 consumer on the world market had a 67% increase. This speaks to ever growing global momentum and will ultimately raise prices. The surging demand for decentralized, private cryptocurrency also bodes well for gold, as demand from both stems from similar motivation of buyers.
There is still a great deal of optimism in the stock market after the 2017 rally. Investors are going to start looking for what’s next though in anticipation of the next market correction. With gold looking favorable, it will attract a lot of these buyers.
Gold mining for 2017 was at its lowest it has been since the financial crisis. Risks are increasing in many parts of the world, and struggling mines in Africa and southeast Asia closed this year. As output from the ground decreases limiting future supply, prices in the long term will go up.
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