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Gold Is Proving Resilient, but Will It Continue?

Image via Flickr sprottmoney

Gold is one of those precious metals that has remained popular throughout history. The demand for gold has gone up and down, but overall it has experienced an upward trend. The price of gold
saw a sharp increase in 2016, and it’s proving to be resilient in foreign markets. Analysts
continue to debate if the trend will continue.

Why Is Gold Considered so Valuable?

Gold doesn’t tarnish or corrode like silver and copper, and it isn’t soluble in normal acids and
solvents. That’s why people during ancient times considered the metal indestructible and used it
in all sorts of industrial and decorative projects. Gold is rare and difficult to extract in large
quantities, but the precious metal is fairly easy to process.
Today, people still consider gold valuable both because of ancient tradition and because it serves
as a commodity. Platinum is much more rare than gold, but many people still opt to collect gold
most of the time. The decorative appeal of gold is what has made it so valuable and coveted
throughout history.

Gold Prices Spike in 2016

Gold prices went up nearly 20 percent in 2016, but consumers think uneasiness about American
interest rates could cause the price to decrease again. Despite consumer speculation,
commodities analyst Simna Gambarini says that the upward trajectory of gold will likely remain
in 2017. When the Federal Reserve raises rates, the price of gold typically falls, but only
temporarily. For instance, when the Fed hiked rates in December 2015, the price of gold only
dropped for a couple of months.
There are several reasons that Gambarini thinks gold prices will remain high overall even though
interest rates in the U.S. have started to climb again:

  •  Interest rates are still low in comparison to a few years ago.
  • Banks outside the U.S. don’t always follow the lead of the Fed and are subject to different
    stimulus programs.
  • Political uncertainty in the U.S. and Europe will keep the market in a state of limbo.

Will Gold Prices Drop in 2017?

The price of gold never really stabilizes because it’s a volatile asset. That makes it hard to predict
future prices. Gambarini could be right in that gold prices will continue to be bullish in the first
half of 2017, but Taki Tsakianos from Investing Haven makes some good points that indicate a
bearish trend in gold prices in 2017.

Tsakianos states that fear drives the gold market. Political uncertainty related to events like the
U.S. presidential election and Brexit increase that fear. Tsakianos predicts gold could drop to
$890 before it turns around and evolves into a strong bull market again.

In December 2016, the Fed increased the interest rate and people started to sell their gold. This
confirms that gold prices reflect fear. It’s still unclear how temporary the drop will be, though.
Gold has remained resilient in foreign markets, and it could recover quickly depending on what
happens in the United States and around the world.

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