by Victor Mozambigue
Nervous investors are always good news for the yellow metal. Whenever political uncertainties start affecting the financial markets, investors find a safe haven in gold. This time around, the stocks are more uncertain than ever and a globalized fear of a depression is fueling the investors’ demands to hold more gold. The yellow metal did not see much action last year but with Brexit, Frexit, fears of a Euro dismantle and political uncertainties in the United States, gold will become a reckoning investment option for the investors.
Do the Germans know something we don’t?
In 2013, Germany detailed its plan to get its gold back from the US and France. Currently, it has sourced back 583 tons of its gold reserves from Paris and New York. This means the German plan to repatriate half of its gold in Frankfurt in the by 2020 has been achieved, 3 years ahead of the plan. Though conspiracy theories about the Feds selling German gold are ripe, it appears that Bundesbank is planning for the worst-case scenario- a Eurozone crisis.
— Tahoe Co (@Tahoe_Gold) February 15, 2017
It is quite evident that the Euro zone has its own share of qualms. The Brexit is a reality now and the Euro dismantling sentiment is also high in France and Italy. Germany wants to be prepared if the need for a new deutschemark arises. German gold weighing 3,378 tons is valued at 120 billion euros and has been stashed away from domestic borders since the Cold War days. The Bundesbank wants to bring domestic confidence back.
Investment scenario in gold
The speculations about gold prices are positive, not necessarily bullish. In 2016, gold was bullish in the beginning at approximately $1400 per ounce but rallied down steeply at $1,150 per ounce by the end. Gold has been unable to move ahead of $1400 per ounce mark even in bullish markets for years. Therefore, even with a positive growth outlook, it looks that gold will remain stagnant in 2017 around $1200-$1350 as predicted by various banks.
It is important to note that global political crises and fears will hit the stock markets hard. Domestically, talks about unscrupulous trade relations with China, NAFTA modifications and dismantling of the Dodd-Frank may make nervous investors look for safer investment options in 2017.
It will be wiser to treat gold as an inflation hedge instead of a safe haven during these times. Dollar will be bearish under Trump administration if he carries on with his pro-trade policies and softens the greenback. If spending increases and proposed tax cuts are put in place, the inflationary pressures will grow. Hence, gold will provide a necessary hedge to the investors.
Should you invest in gold?
Adding gold to the portfolio will be the right decision for an investor. If a rate hike occurs in March, the US dollar will certainly soften making it easier for the investors to get gold at lower prices. The Trump presidency is unpredictable and its protectionism may not bear too well with some sensitive investors. Euro economies are ailing too. China and Japan are debt-ridden and are under severe pressure to keep up with their GDP targets. Hence, buying gold will be an attractive investment option for you to keep your investment safe.
The trends for gold investment will be clear by March when we know whether new spending or tax cuts are executed. Overall, the year will be good for gold investors. Gold ETFs will also be great investment options as crises will unfold in Asian or European markets by end of 2017 or early 2018. Trump’s pro-trade policies will be helpful for stock market investors but gold will act as a hedge for inflation.