World Bank forecasts gold price drops for remainder of this year
The World Bank has issued figures that suggest the gold price will achieve an average of $1,150 this year. The global lender believes that there will be a fall of seven per cent in 2017 because of rising interest rates in America and the strengthening dollar.
Gold Price During January and February 2017 – peaking around $1255 towards the end of the month:
Gold Forecast Fears Unfounded?
Recently, gold spot prices have hovered at circa $1,200. This suggests that a marked drop would be needed in order for the lender’s forecast to be accurate. However, the underlying drivers – anticipated rises in interest rates and a strengthening US dollar, are predictions that are shared widely by most market analysts.
America’s interest rates are set to rise as its economy improves. Currently, there is a period of uncertainty as the Trump administration settles into the Whitehouse, but the Federal Reserve laid out no less than three hikes at its last official meeting before Christmas.
Trump Economics
The Donald Trump effect is helping to create a hawkish environment. He has spoken of his intention to kick-off sizeable infrastructure investment programmes whilst slashing taxes to encourage growth and allow for inflation, which is mainly controlled through the central setting of interest rates.
When rates rise, the price of gold tends to fall as it isn’t an income bearing asset and rapidly loses popularity against other assets with a yield. Gold tends to be used as a reserve or hedge asset, particularly when investors are feeling jittery and want to put their investments into safe havens.
In 2016, the price of gold averaged out at $1,247 per ounce, after slowly growing throughout the year to a peak of $1,337 on the night of the presidential election result. Upon Trump’s shock victory, it dropped sharply.
2017 So far
Prices saw a drop towards the end of January, after an initial strong start to 2017. Reuters have ascribed this to the continued rebound of the dollar, which has occurred on the back of further positive economic data. Since then, the Trump administration has done little to settle markets, and the ‘safe’ view of gold has seen it recover throughout February.
At the time of writing, the price of gold stood at $1,250 – so the forecast of the World Bank looks a little off. Though factors that may still drive down the price of gold include lessening demand from India and China, which have both been typically large buyers of the metal.
Gold remains a much traded asset, especially in uncertain times. It therefore delivers a useful market for binary traders to exploit over the short and medium term expiry periods.
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