Why Not Everything That Shines is Golden

OlufisayoDecember 30, 20160892 views

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Whether you are a novice investor or an experienced trader, you will probably be aware that gold is regarded as a secure store of wealth.

More specifically, it is often treated as a safe-haven during times of economic turbulence, as prices rise in a recession before falling once order and prosperity has been restored.

This is a fundamental rule of trading, and one which makes future gold and precious metal trends relatively easy to predict. It also means that while gold is not always a viable investment option or asset class, it is relatively easy to determine when to buy and when to sell in accordance with the prevailing, economic climate.

The Gold Trap: Recovering from a Roller-coaster 12 Months

Even with a keen sense of determinism and an understanding of the precious metal marketplace, traders must still cope with considerable volatility when dealing in gold. 2016 offered a prime example of this, with precious metal ETFs enduring a roller coaster ride that began with considerable growth before recording a fourth consecutive annual decline at the end of the year. Gold recorded its highest two-quarter percentage since 2007 on the back of the Brexit vote, for example, before experiencing a shocking 12% drop as the economy rebounded in November.

This decline represented the second-worst quarterly performance in 18 years, while reaching a low that had not been visited since the second quarter of 2013.

Much of this had to do with an improved global economy, as Chinese manufacturing fears eased and the markets rallied after Donald Trump’s surprise election as U.S. President. The decision of the Federal Reserve to increase the base interest rate also drove improved market sentiment, particularly as this represented the first move of its kind since the 2008 financial crisis. This combination of factors has quelled the real-time demand for gold, while encouraging investors to look elsewhere as 2017 emerges on the horizon.

Gold in 2017: Why It May Be Wise to Invest Elsewhere

Quite aside from the fact that an improved economic climate has lowered the level of demand, the value of gold and its ability to deliver a desirable return will also decline in the New Year. Instead, investors will look to embrace more rewarding asset classes such as Treasury bonds, which have seen their yields rise rapidly since the American election result. Margin-based derivatives such as currency will also deliver a superior return in the current climate, with Forex.com reporting that the U.S. Dollar has continued to gain in strength during the last two financial quarters.

Traditional stocks and shares are also likely to rebound during the formative months of 2017, as less conservative investment options emerge against the backdrop of a brighter economic outlook.

With the greenback providing a strong currency option and bonds also delivering increasingly appealing yields, there is no doubt that investors will be spoiled for choice in 2017. They will almost certainly need to make a movement away from gold, however, which will continue to decline in value as the economic climate improves.

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