What Are The Factors Driving Gold Prices This Year?

March 7th, 2017 by Trefis Team
SLW: Wheaton Precious Metals logo
SLW
Wheaton Precious Metals

Gold prices have risen considerably since the start of the year, as illustrated by the graph shown below.

Gold Prices March 2017

London PM Fix Gold Prices, Source: Kitco

The short-term trajectory of gold prices is likely to be determined by fluctuations in the investment demand for gold. Gold is largely seen as a safe-haven asset, with investment demand for the metal largely driven by macroeconomic uncertainty. Rising economic growth and interest rates tend to lower the investment demand for the commodity.

The Federal Reserve chairwoman has indicated that a March interest rate hike is likely, amid robust jobs growth, rising inflation, and strengthening economic conditions in the U.S. [1] This has largely been responsible for the decline in prices over the past couple of weeks. Though strengthening economic conditions in the U.S. and the possibility of rate hikes further in the year are expected to keep prices under pressure throughout the year, the uncertainty created by political developments outside the U.S. have helped prop up prices.

The current year will witness elections in France, the Netherlands, and Germany. [2] Political parties favoring the renegotiation of the terms of membership of the respective member countries with the European Union have gained currency, particularly in France and the Netherlands. [2] Uncertainty over the outcomes of these elections has driven the safe-haven investment demand for gold, particularly given the surprise outcome of the UK’s EU referendum last year. As per the World Gold Council, gold ETFs were net buyers to the tune of 532 metric tons of gold in 2016, as against being net sellers of 128 metric tons of gold in 2015, illustrating the extent to which the investment demand for gold was impacted by the June 23 referendum. [3] Thus, political developments are likely to limit the downside for gold prices in the first half of the year. However, barring any surprise outcomes in the European elections, we expected firming economic conditions in the U.S. to act as a dampener on gold prices. The following chart illustrates our forecast for gold prices.

Have more questions about Silver Wheaton? See the links below.

Relevant Articles
  1. IQOS Helps Philip Morris Navigate Well In Q1
  2. Down 45% Year To Date, What’s Happening With Sirius Stock?
  3. Meta Platforms Stock Dropped 10.6% In A Day, What’s Next?
  4. What Factors Will Drive Pfizer’s Q1 Performance?
  5. A Rebound In Asia Travel Will Likely Drive Estée Lauder’s Q3 Performance
  6. Higher Medical Costs Likely Weighed On CVS Health’s Q1 Earnings

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Silver Wheaton

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)

Get Trefis Technology

Notes:

  1. Great jobs report or not, Fed appears bent on raising interest rates, MarketWatch [↩]
  2. Gold prices soar as the post-election Trump trade begins to unwind: Saxo Bank, CNBC [↩] [↩]
  3. Gold Demand Trends Full Year 2016, World Gold Council [↩]