Precious Metals Fourth-Quarter 2016 Review And The Outlook For Q1 And 2017
London (Jan 3) Summary•A bullish year for gold but a bearish fourth quarter. •Silver falters. •Platinum enters the sixth year of the deficit but price does not reflect fundamentals.
•Precious metals become alternative investment vehicles once again. •A repeat of last year seems unlikely but not impossible.
Precious metals were the worst performing commodities sector in the fourth quarter. A composite of the active month futures prices of the four exchange-traded precious metals moved lower by an average of 11.92% in Q4. This composite dropped by 8.10% in 2014. The sector fell by 19.46% in 2015, but in 2016, precious metals have gained 11.71%. The US dollar moved higher 7.23% during the final three months of the year and was up 3.59% in 2016. A continuation of low interest rates around the world along with economic and political uncertainty had been supportive of precious metals prices in 2016. However, the bullish party stalled after the U.S. election and prices declined.
Global interest rates continue to be at very low levels - in Europe, and Japan rates are negative. In China, they continue to fall, and the currency, the yuan has been the subject of a devaluation program by the government. The U.S. Federal Reserve raised the Fed funds rate for the first time in December 2015 and promised 3-4 additional hikes in 2016, but only increased the rate once at the December 14 meeting. At their final meeting of the year, the U.S. central bank told markets to expect three more 25 basis point rate hikes in 2017. The election of Donald Trump as the forty-fifth president of the United States was initially bullish for the price of gold, but the buying only lasted for a few short hours and gold tanked in the wake of the election, taking the other precious metals along for the bearish ride.
Gold Review
Gold closed on December 31, 2015 at $1060.20 per ounce. It never traded to that level in 2016 as the price of the yellow metal moved higher on the first trading day of the year and never looked back. Gold fell 10.46% in 2015, but it rallied by 8.66% in 2016. In Q4, the yellow metal declined by 12.54%. Gold settled on December 30, 2016, at $1152 per ounce basis the active month COMEX February futures contract. Gold traded in a range between $1061 and $1387.10 over the course of the year with the highs coming on July 5, at the beginning of the third quarter and just after the surprise Brexit vote. The lows for the year came on the first trading day in 2016. Gold had entered into bull market territory, but that came to an end on the day following the U.S. presidential election. A last-gasp rally up to $1341 on the night of November 8 evaporated into selling taking gold down to a low of $1123.90 in the middle of December. Physical demand for gold continues to be active around the world. Central banks have been net purchasers of the yellow metal with most buying coming from Russia and China, who have been adding to national reserves. While these monetary authorities bought around 550 tons in 2015, official sector purchases this year are likely to be closer to the 400-ton level. In November, Russia bought one million ounces of gold. Currency issues in India has increased demand for the metal and a change in Sharia law allowing people to own gold and gold instruments could add to physical and derivative demand in the months and years ahead.
Source: SeekingAlpha
