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Gold will be
“Fear Asset”
In
2017
After the metal’s best first half bullion has been losing its luster as
global
records
despite
Gold is on
After especially
the metal’sU.S.
bestequities
first halfrallied
bulliontohas
been losing
itsthat
luster
the
forespecially
9 percentU.S.
plusequities
return for
2016.
asway
global
rallied
to records despite that
What
gold plus
to rise?
Goldtype
is on of
thefear
waytriggers
for 9 percent
return for 2016.
Fear of inflation or that paper assets will return to their intrinsic value
(i.e.
zero)
What
type of fear triggers gold to rise?
• Fear
of inflation
or that paperlike
assets
will return and
to their
intrinsic
value
(i.e.will
zero)not be able
Fear
that
governments
P.I.I.G.S
even
the
U.S.
Fear that governments like P.I.I.G.S and even the U.S. will not be able to pay their
to• pay
their debts.
debts.
• Fear
thatthe
the EU
disband
Fear
that
EUwill
will
disband
• Fear of stock market collapse or instability.
Fear
of stock market collapse or instability.
• Fear that the housing market will collapse.
• Fear
of War
Terrorism market will collapse.
Fear
that
theorhousing
• Fear of Banking Collapse or Corporate Bankruptcy
Fear
of ofWar
oranything
Terrorism
• Fear
almost
Fear
Banking
Collapse
Corporate
Bankruptcy
Yes, of
there
is plenty of
fear in theor
market
these days
to fuel the price of gold.
Fear
of almost anything
In addition to Fear... China demand may be driving up the price of Gold.
Yes, there is plenty of fear in the market these days to fuel the price of
gold.
A History of Holding Its Value
A significant reason why people invest in gold is that it has
performed admirably in holding its value over the long-term in
comparison to other assets like paper currency, some coins or
even stocks, which can lose their entire value if the company goes
bust.
Inflation
Gold is considered an ideal hedge against inflation — a reliable
measure of protection against purchasing power risk. As a hedge
against inflation, gold has ascended to great highs over the past
decade, due to liberal central bank policies, such as the Federal
Reserve’s recent quantitative easing programs.
Gold in India—A Different Story
Gold acts as a great hedge against inflation and has continued to
do well in currencies where the central bank is running a policy of
negative real rates and making financial savings unattractive, e.g.
in India.
Geopolitical Uncertainty
• Gold typically rises when a crisis is
of sufficient depth and breadth to
trigger a system-wide failure.
• The proxy war in the Middle East
between Saudi Arabia and Iran;
• The collapse
Union……
of
the
European
The bottom line is that political
chaos equates to more interest in
gold as a safe haven.
Increasing Demand
• Latest development is Islamic finance standards spur
development of gold, silver products. Muslim investors will
quickly embrace gold investment products such as coins, bars
and include gold savings plans, gold certificates, and certainly
Gold futures in their financial goals.
• Central Bank demand could accelerate on Growing Federal Debt
• Allow for Mutual funds in India to invest in commodities
• Over the long term, gold supply is expected to decline against
the sustained investment demand from ETFs and Central Banks,
along with a small rebound in gold jewelry demand.
• Gold had been seen as portfolio diversification
Outlook for 2017 heading towards 30500 mark
The gold price should underperform in Q1-Q2 2017 can see prices once again near
to 25000 per 10 gms level next year. We believe that the key medium-term drivers
of the gold price are Fed policy, US real interest rates, inflation expectations, the
US dollar, central bank gold transactions and retail demand from China and India.
While a softening outlook for the US economy may be seen in H2’17 and the Fed
maintaining its dovish posture can change the sentimental. Also a sharp rise in
geopolitical risk in the Middle East/SE Asia. A similar period occurred in 2005 and
gold rallied with the US dollar.
Thank you
Kedia Commodity, Mumbai
Email: [email protected]