The price of gold is set to rise as political uncertainty grips Europe and the USA, says a trade body for gold producers.
The World Gold Council argues that Donald Trump taking office as president in America, together with Brexit and several elections in key European Union states could undermine stock markets.
This could see investors buying gold as a safer choice rather than stocks and shares, cautions the organisation.
However, the price of gold is not attractive – although the price per ounce is $240 up over the past 12 months, in the intervening time, the value has hit as high as $1,357 in July.
The latest spot price is $1,203 an ounce.
Safe haven for investors
The council’s gold price outlook for 2017 suggests the cost for an ounce will rise due to six factors:
- Heightened political and geopolitical risks in the US and Europe
- Currency depreciation due to the strengthening US dollar
- Rising inflation expectations
- Inflated stock market valuations
- Long-term Asian growth in demand for gold which is expected to surge by 60% in 2017
- Opening of new markets for gold exchange traded funds and the development of an international Sharia’h gold standard
“Gold is especially effective as a safe haven during times of systemic crisis, when investors tend to withdraw from risk assets,” says the report.
Liquidity provider of last resort
“As they pull back, gold’s correlation to stocks becomes progressively more negative and its price tends to increase. Gold historically performs better than other high-quality liquid assets during periods of crisis and that makes it an excellent liquidity provider of last resort.”
The council suggests that investors will flock back to buying gold this year.
“Investors around the world returned in large numbers to the gold market, as a combination of macroeconomic drivers and pent up demand kept interest in gold high,” says the report.
“As we start the new year, there are some concerns that US dollar strength may limit gold’s appeal. We believe that, on the contrary, not only will gold remain highly relevant as a strategic portfolio component, but also the six major trends will support demand for gold throughout 2017.”
