Although we are currently witnessing a short term weakness in the gold market, I am not too worried, because gold has the potential to bounce back in the latter part of the year, so investors do not ignore gold yet.
There are several reasons for this almost bearish near-term outlook for gold. The policies by President Trump will have a short-term positive effect on the US economy. At the same time, the Federal Reserve is prepared to get involved even more in the economy through its numismatic policy. In addition, the demand for gold in key gold consumers such as China and India is weakening.
The dollar and the stock market are those who benefit the most. As we all know when the dollar and the stock-market rise in value, then gold drops. I personally believe the dollar will probably peak around mid-year. Then there will be debt issues and deficit spending that will actually make gold shine again.
Inflation is also a key for the price of gold, as gold acts as a hedge against inflation and inflation are on the rise. Inflation rose by 2.1% last year and the outlook for this year is to rise further. Housing costs are rising at the fastest pace for almost a decade and housing costs are responsible for 40% of the inflation in the US.
The rise in medical costs and wages will also add to inflation.
In 2016 gold had a strong first half but it lost ground in the second, to end up at the end of the year with a respectable 8.5% overall rise. I expect the pattern to be reversed this year with gold to gain at the end of the year.