Gold Price Update: Q2 2017 in Review

What happened to gold in Q2 2017? Our gold price update outlines key market developments.

gold price update

The gold price stalled in the second quarter of the year as concerns about geopolitical tension faded away. The US Federal Reserve’s rate hike decision in June also hurt the yellow metal, as gold is highly sensitive to increasing rates.

However, gold is still up more than 8 percent year-to-date. Concerns about US President Donald Trump, future Fed interest rate hikes as well as political uncertainty outside the US were factors that drove the precious metal’s price in the first half of the year.

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 Q2, plus a look at what investors should watch out for in the third quarter of the year.

Gold price update: Q2 overview

In the second quarter of the year, the gold price lost 0.4 percent; however, as mentioned, it was still up more than 8 percent for the first half of the year. As the chart below from Kitco shows, the metal put on a volatile performance in Q2, reaching its first monthly loss of the year in June.

gold price update

Chart via Kitco.

Gold hit its lowest point of the quarter on May 10, when it fell to $1,218.80 per ounce after a US FOMC meeting. Investors turned to riskier assets, abandoning safe-haven metals like gold.

The metal rebounded in June, reaching a quarterly peak of $1,293.60 on June 6, its highest price in seven months. The gold price pulled back a few days after due to the Fed’s decision to hike rates, and has been on a downtrend since the end of the quarter.

Gold price update: Supply and demand

According to Thomson Reuters GFMS, physical gold demand may increase 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 firm says in its GFMS Gold Survey 2017.

In fact, physical demand from India, the world’s second-largest consumer, has been surging since January. The Indian government decided to demonetize the economy last November, and in the first half of 2017 the country’s gold imports came to $22.2 billion. That’s compared to $23 billion for all of last year.

In the case of China, the world’s largest consumer of gold, the most recent data shows that local consumption was up 15 percent in the first quarter, with sales of bars for investment climbing more than 60 percent and dwarfing a 1.4-percent rise in jewelry buying, according to the China Gold Association.

“People are looking at other means to invest, a safe haven to protect their renminbi because of the depreciation, so everybody starts to look for safe haven products,” said Haywood Cheung, president of the Chinese Gold and Silver Exchange Society. “So I think we’re going to have a good year.”

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 third 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.

“The Federal Reserve and shifting expectations over the future of US monetary policy will be key to watch to assess gold prices,” FocusEconomics economist Oliver Reynolds commented via email.

Similarly, CRU analysts said in a note that a combination of stronger US monetary policy and growing disappointment with Trump’s “shock therapy” for the US economy are causes for concern.

Outside the US, other geopolitical factors to watch this year include Europe’s political future. Later in 2017, Germany and Austria will face two more tests by populist politicians as they head to the polls in September and October, respectively. Brexit negotiations could also bring volatility to the markets in the medium term.

“We expect gold prices to average $1,238/oz this year, a drop of 1 percent from 2016’s average,” CRU analysts said. Looking further ahead, they expect the gold price to start heading south as soon as next year, pressured by rising US interest rates.

Panelists at FocusEconomics see gold remaining broadly stable this year, averaging $1,246 in Q3. TD Economics is more bullish with a price forecast of $1,275 for the quarter, while DZ Bank is on the bearish end of the spectrum with a call for $1,200.

“Our forecasts are remarkably similar to those we made at the outset of the year, for one simple reason: the big picture of heightened global uncertainty remains unchanged,” Reynolds added.

Many other analysts also remain optimistic about gold this year. In a recent interview, Frank Holmes, CEO and chief investment officer of US Global Investors (NASDAQ:GROW), said he is bullish on gold, explaining, “investors have to recognize that gold has a seasonal pattern to it. There is a 60- to 70-percent probability of gold rising between June and January next year.” 

Peter Schiff, president and CEO of Euro Pacific Capital, said that in his opinion, “there is no limit to how high gold can go, because there’s no limit to how low the [US] dollar can go.” He added, “it’s not really that the price of gold is going up, it’s [that] the value of paper currencies is going down, and you can measure that loss of value with the price of gold.”

Similarly, John Kaiser of Kaiser Research has said that gold could likely reach $2,000 in the next three years.

Don’t forget to follow us @INN_Resource for real-time news updates!

Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

Gold Outlook 2017!

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This article is updated each quarter. Please scroll the top for the most recent information.

Gold Price Update: Q1 2017 in Review

By Priscila Barrera, April 17, 2017.

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.

gold price update

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 [2016] 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.

Don’t forget to follow us @INN_Resource for real-time news updates!

Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

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