The yellow metal has gained almost 26% since 1 January, the best half-year performance since 1980, Bloomberg data showed.
Silver, following gold, rose 30% in the first six months, leaving other assets such as the US and German bonds, Japanese yen and the US dollar far behind.
This increase in prices was triggered by global political and economic uncertainty thus making bullion the year’s most preferred investment, with gold and silver beating other asset classes by a mile.
While it is typical for the yellow metal to experience ups and downs in demand and price, this year has been particularly volatile for the commodity. This has largely been due to the incredible amount of uncertainty that has been the keystone of 2016.
- Global economic uncertainty
- Concerns of slowdown in China
- Accommodative monetary policy of the major central banks
- Weakness in dollar earlier this year
- Political instability
- Ambiguity regarding global markets.
The above factors coming together have prompted investments into safe haven assets like gold and silver.
We saw many things happening globally which directly and directly influenced gold and silver prices-.
Let’s take a look as to what factors triggered the rally in precious metals in 2016 and how will they further affect them in the coming year-
EU/UK- Precious metals made a comeback this year, registering stellar gains in the first quarter of this year. The bullish theme had got a further boost with surprise results of UK’s referendum vote to leave the EU and global turmoil it had evoked, leading to ‘risk off’ sentiments in the market. It will take time to understand the implications of Brexit on the global economy, where volatility and wild price swings are expected to persist.
However, as the year draws to an end, many investors and potential investors are wondering what the following year could hold for gold.
Analysts said the shock result of UK’s EU referendum vote further strengthens bullion’s appeal as a safe haven asset.
The past four sessions following the Brexit vote saw gold prices spike about 6%, while silver advanced about 5%.
The already tense political situation in Europe has been complicated further with the Brexit, which had not been expected by the markets. We believe that the events of the past year are validating our views and are maintaining our bullish sentiments for gold.
US Presidential Elections and Dollar-
The US elections tend to have somewhat of a positive effect on the price of gold. This is because there is often some uncertainty regarding the outcome of an election. Each presidential candidate has their own views and policies regarding various economical elements and these often diverge from one another. Due to this, many investors tend to take refuge in the yellow metal in such unreliable times. This is why, in the days leading up to and for a short while after, the precious metal enjoys an increase in value. This, however, tends to even out after a while. This year, and the next, however, may prove to be a little different. This is largely due to President-Elect Donald Trump. In addition to his impending election coming as a shock to many, it also means that there is a great deal of economic doubt. In particular, according to the claims made by Trump, many people expect a loss in value of paper currency. Therefore, this will result in a bump in the value of the yellow metal.
Strengthening US dollar was the major contributor to weakness in gold and commodity prices for the past few years. However, increasing uncertainty about economic and political developments, low-to-negative interest rate environment as well as doubts over global economic recovery has led to demand for precious metals.
Increased Inflation Rates
When it comes to inflation rates, the United States as well as the Bank of England do not see a great deal of positivity. Both institutions are expecting the inflation to rate in the coming year. About a month ago, the Bank of England indicated that it expected the rate to be as high as 2.7%, an increase from the current 1.00%. The United States is presumed to experience about 1.54% in inflation. One of the more time-honoured traditions among investors is to head for gold in times of inflation increase.
Analysts said that the revival in interest in gold investments is also positive for inflation-sensitive assets like silver and mining (gold and silver) stocks.
The market will also see the beginning of a strong run in silver prices, after the white metal yielded negative returns for the past three years and was a forgotten asset class amid consolidation.
With investors engaging in flight to safety towards gold and silver, the prices are likely to get an upward thrust, where silver is on the point of outperforming gold over a medium-term time frame.
All of these factors mean that gold could be enjoying a particularly good year in 2017. Although only time will tell, the forecast is looking bright.