Gold in 2016: A Good Year?

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This short review summarizes gold in 2016, with respect to the price and value of the precious metal.

Depending on your starting point, gold has increased in value (measured in US dollar market value) by 8 to 9%. With that in mind, has 2016 really suggested that the bear market for gold over the past few years (a bull market for equities) is over?

If you were to chart predictions across the market, you would probably find a very low coefficient of correlation. Statistically, paying attention to analyst report is out right silly. As a former Federal Reserve Chairman Ben Bernanke he has suggested, trying to predict gold prices is silly.

Early Gold in 2016

One of the most interesting periods this year was the first quarter of 2016. Gold prices increased some 16 to 17%. This is a staggering number considering gold is traditionally seen as a less risky, and less volatile investment. Bear in mind, stock market indexes increased even more than that, on the strength of a booming US economy.

Long Term Challenge

There are two long-term issues: first, will US economic success continued through the long-term? Second, how will Central Banks act over the next few years? One reason to stay away from predicting Gold trends is that this year, a dramatic US election did little boost the price of gold.

What can we expect to see? You might be wiser to ask what world events you would be like to see. Will we have more European countries look to exit the economic union? If so, do we expect markets to respond with a strong emotional response, or a long-term optimism? Are we seeing more institutional investors looking at long-term prospects, and therefore less willing to play “the game”?

If the US economy does succeed, and if the federal reserve continues to act on that assumption, one traditional appeal of gold maybe threatened. That appeal is the ability of gold to fight inflation.

Despite the positive rhetoric, a sort of balance sheets prices can be hypothesized in consumer pocketbooks. After nearly a decade of easy money, both prices and expectations appear “wonky”. Unfortunately, there are no easy answers. Even populist political movements are hesitant to propose specific economic solutions. One of the few things we can say for sure is that if the holding cost of gold increases (because of an interest rate increase) we will probably see a decrease in demand, ceterus paribus. This is the same reason a stronger dollar has been tied to weaker gold prices.

Questions for those Buying or Selling Gold

Know that factors like political uncertainty tend to be short-term boosts for gold. The real question is what do investors thinking the long-term? The most important question however is what are the micro economic trends? Are factors such as policy changes that might affect spending for surplus funds likely? If these were to occur in countries with specifically larger demand, there might be a dangerous result for short term prices.

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