The gold price made its eighth Q1 gain in 10 years in the first quarter of 2017, buoyed by safe-haven demand from anxious investors.
Concerns about US President Donald Trump and anticipated rate hikes from the US Federal Reserve have caused worries, as have the Brexit process and upcoming European elections. All of those combined in the first three months of the year to drive the yellow metal’s price.
Many market watchers believe the gold price will continue to rise in 2017, supported by further geopolitical tension and Trump-related instability. Read on for an overview of the factors that impacted the gold market in Q1, plus a look at what investors should watch out for in the second quarter of the year.
Gold price update: Q1 overview
At the end of Q1, the gold price was up 8.87 percent year-to-date, its best quarterly gain in a year. As the chart below from Kitco shows, the metal has been trading in a choppy fashion since January, but climbed in the last few weeks of the quarter to reach a five-month high.
“The fear trade has driven the market so far this year,” David Govett of Marex Spectron told Reuters.
Chart via Kitco.
Gold hit its lowest point on January 26, when it sank to $1,184.62 per ounce due to US dollar strength. The metal rebounded in February, reaching a quarterly peak of $1,257.64 on February 23 prior to a Fed rate hike announcement.
The gold price slipped again in the first half of March, but has been surging since then, supported by increased geopolitical tension. At the end of Q1, the gold price was trading at $1,249.30.
Gold price update: Supply and demand
According to Thomson Reuters GFMS, world gold mine production remained almost neutral in 2016, posting an increase of only 0.4 percent. The organization is calling for a decline in 2017.
“The  rise … was modest and in our view these record breaking habits are close to an end,” the firm says in its GFMS Gold Survey 2017. “The growth rate has roughly halved every year for the last three years, partly as output from new mines has slowed and we expect production to contract in 2017.”
In terms of demand, total global physical gold demand slumped 18 percent last year to reach its lowest level since 2009. The fall was mainly due to a 21-percent decline in jewelry fabrication, and it led the gold market to its biggest physical surplus of the century — 1,176 tonnes compared to just 220 tonnes in 2015.
GFMS sees physical gold demand potentially increasing later in 2017 due to political uncertainty and tension across the globe. “There are few indications that physical demand from Asia is set to pick up just yet. However, as the year progresses there is a growing likelihood of safehaven flows helped by either or both US and European geopolitics,” the report says.
That said, the market is still likely to see another surplus in 2017. “We are expecting a reduction in global mine output and a gradual demand recovery globally in 2017, resulting in a smaller surplus than in 2016 but a large one nonetheless,” GFMS notes.
Gold price update: What’s ahead?
As the second quarter of the year begins, investors interested in the gold market should pay attention to a number of factors that could have a short-term impact on the precious metal’s price.
“While the European elections, Brexit negotiations and Trump’s foreign policies could reignite safe-haven interest, gold is not without hurdles,” Standard Chartered (LSE:STAN) recently said in a note. “We believe the fragile physical market and Fed rate hikes will create a softer footing for gold prices. We maintain our view that Q2 and Q3-2017 are likely to mark the strongest quarters for gold prices this year.”
Paul Christopher, head global market strategist for Wells Fargo Investment Institute in St. Louis, also emphasized that gold may face difficulties as the year continues. He suggested that investors should “[g]et accustomed to uncertainty because of US foreign policy questions and trade questions,” as well as uncertainty over tax reform in the US.
“The market will see good days and bad days and end the year roughly where it is,” he added.
Panelists at FocusEconomics see gold remaining broadly stable this year, averaging $1,208 in Q2. RBC Capital Markets is more bullish with a price forecast of $1,300 for the quarter, while DZ Bank is on the bearish end of the spectrum with a call for $1,100. GFMS sees the metal averaging $1,259 in 2017, up slightly from $1,248 last year.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.