Gold Price Forecast for the Next Three Months
The gold price forecast for the next three months (Q2 2017) remains bullish. Gold prices may still be down roughly 4.5% since before the U.S. election back in November, but gold prices have rebounded and advanced almost nine percent in the first quarter of 2017. Will that momentum continue into the second quarter of 2017?
Despite the advances gold has made so far in 2017, gold prices appear to be hemmed in, with support near $1,235 and a ceiling near $1,260 per ounce. This has led many dollar bulls to conclude that gold prices have topped out and are ready to fall. But the optimism that gripped Wall Street following Trump’s election win, and sent gold and precious metal prices tumbling, seems to be wavering.
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Gross domestic product (GDP) data has been disappointing; despite rising rates, the Fed remains dovish on the state of the U.S. economy; division in the Trump administration is leaving Americans uncertain about the future direction of the economy and whether Trump can realize his pledge to generate annual GDP growth of three to four percent. In the midst of all of this, the stock market continues to trade near record levels and be significantly overvalued.
Gold prices may be feeling pressure, but a combination of these, and other factors, could easily see gold prices soar in the second quarter of 2017. A gold price forecast for Q2 2017 to pre-election levels of between $1,375 per ounce and $1,500 per ounce is not out of the question over the coming months.
Gold to Climb as U.S. Economy Stalls
Investors view gold as a hedge against economic uncertainty. That’s why many see no reason to be a gold bull right now; consumer confidence is at a 16-year high, unemployment is at 4.7%, and inflation is in check. But the gold price trends could reverse in the second quarter. That’s because the U.S. economy isn’t doing as well as most people think.
Chart courtesy of StockCharts.com
In 2016, GDP was just 1.6%; the worst reading since 2011. That may not sound all that bad, but it’s worse than it looks. For starters, in 2015, U.S. GDP was 2.6%; so 2016’s reading of 1.6% is more than a little disappointing. If the economic recovery is in bloom, we’d expect to see that number rise…not plunge. (Source: “Gross Domestic Product: Fourth Quarter and Annual 2016 (Third Estimate),” Bureau of Economic Analysis, March 30, 2017.)
It’s not just that 2016 U.S. economic growth was the worst since 2011, it was the fourth-worst year over the last quarter of a century. The Fed has poured trillions into the U.S. economy with its quantitative easing experiment, and the Obama administration spent trillions trying to jolt the economy, but to no avail.
Before the financial crisis, and going back to World War 2, U.S. GDP was usually above three percent. Only since 2008 has U.S. GDP been unseemly. Since 2008, U.S. GDP has averaged just 1.25%. Even if you forgive the negative annual GDP from 2008 (-0.3%) and 2009 (-2.8%), the average GDP growth rate is still just 2.09%. (Source: “GDP Growth (annual %),” The World Bank, last accessed March 20, 2017.)
Even the Feds GDP guidance for 2017 and 2018 of 2.1% doesn’t exactly suggest an economy chugging along. A raft of weak economic data to suggest the U.S. economy is slowing or stalling will put physical gold, gold mining stocks, and gold mining exchange traded funds back into the spotlight.
Investors may not have to wait long for the gold price trend to reverse. There haven’t really been any economic indicators to suggest the U.S. economy is going to hit Donald Trump’s election pledge of four-percent annual GDP growth. In fact, there have been some suggestions that Trump may not be able to usher in the drastic changes he campaigned on.
Gold to Rise on Tensions in Trump Administration
Much of the rise in the stock market of late can be attributed to the unbridled enthusiasm around Donald Trump’s presidency. Wall Street and Main Street were pleased to hear Trump say on the campaign trail that he would slash taxes, increase spending, and cut red tape in order to invigorate the U.S. economy. Not only is it hoped that this will juice Wall Street earnings, it will also lead to four-percent GDP growth.
But cracks are already appearing that suggest neither of these goals will be reached as quickly as voters initially hoped.
First, there is nothing going on in the U.S. economy to suggest that GDP will come anywhere close to four percent in the coming years. U.S. consumer confidence may be at a 16-year high, but that optimism for fast U.S. economic growth could turn sour quickly.
Second, many thought Donald Trump would bring his deal-making genius to the White House. It hasn’t been a smooth ride. Replacing Obamacare was supposed to be a (somewhat) easy slam-dunk. But the American Health Care Act (AHCA) healthcare reform bill, which was backed by the White House, was shelved.
Failure to pass the bill could be the canary in the mine for the Trump administration. The man who literally wrote the art of deal making couldn’t negotiate the AHCA. Many interpret this not just as a failure to swiftly do away with the much maligned Obamacare, but it’s also seen as a referendum on Trump’s ability to turn his campaign promises into policy.
This puts a damper on Trump’s promise to cut taxes, slash spending, and increase infrastructure spending. If it’s seen that President Trump can’t follow through on what he promised on the campaign trail, which is what ushered him into the White House, you can bet voters will get restless and impatient and consumer confidence will tumble. This will bleed onto Wall Street and will result in falling earnings, which have only just begun to be encouraging.
If Wall Street earnings fail to gain traction, investors, sensing the uncertainty, will rush back to gold. It won’t take long for this to happen. Investors are only willing to give Trump a pass for so long; one or two consecutive quarters is all it will take for investors to send gold prices considerably higher.
Gold Prices to Rise on Dovish Federal Reserve
Gold is sensitive to rising U.S. interest rates. Rising interest rates are a vote of confidence from the Fed, which believes the U.S. economy is running strong enough, and has enough gas in the tank, to support a rate hike.
The higher the rate, the lower the interest for non-yield bearing assets like gold. This also has the added benefit, for dollar bulls, of increasing the Greenback, which gold is priced in. Conversely, if the Fed holds off on rate hikes, it implies the U.S. economy is not as strong as it hoped, which is a drag on the U.S. dollar but fuel for gold and silver prices.
Gold prices slipped in the second half of 2016 on the heels of budding optimism about Trump’s economic action plan. Gold prices took another hit in mid-December when the Fed raised its rates for just the second time in a decade.
In the first few months of 2017 though, gold prices rebounded and the U.S. dollar fluctuated. Gold got a boost in mid-March when the Fed announced, after raising rates modestly, that it would only raise rates gradually in 2017. Even there, investors were caught off-guard when the Fed signaled it would raise rates only two more times in 2017. Most economist had, for some unknown reason, been predicting four rate hikes. The dovish outlook for the U.S. economy bodes well for precious metal bulls in the second quarter of 2017.
Gold prices could get an additional lift should the Fed hold off on an expected rate hike. If there’s one thing the Fed has learned, it’s that premature rate hikes could derail the U.S. economy.
Recall if you will, in December 2015, when the Fed raised rates for the first time in a decade. The markets reacted poorly and tanked in January 2016. The Fed raised rates again in December 2016, but optimism about Trump’s presidency trumped any logic about the U.S. economy. Since then, the Fed has cooled its outlook on the U.S. economy and investors are taking a wait-and-see approach to see if Trump can deliver on his campaign trail promises. Gold has great support near $1,235 but cautious words from the Fed in the second quarter could send the gold price through its resistance level.
Stocks Overvalued
Investors may be waiting for some strong economic indicators to tell them where the economy is heading, but that doesn’t mean stocks are taking a breather; stocks are just one percent off record levels. Disappointing first-quarter results or weak second-quarter results could lead to a sell-off that could derail the nine-year old bull-market and send investors hurtling back to gold.
According to the Case-Shiller cyclically adjusted price-to-earnings (CAPE) ratio, the S&P 500 is overvalued by 81.2%. The rate currently stands at 19, the long-term average is 16. It has only been higher twice, in 1929 and 2000. (Source: “Online Data Robert Shiller,” Yale University, last accessed April 3, 2017.)
Stocks still need a long way to go before they get to be as overvalued as they were in 2000, when the ratio was near 45 (it was at 30 in 1929). So investors, who are still putting their faith in the Trump presidency, will not be selling equities any time soon. In fact, the Trump rally still has short-term legs. Unfortunately, that just means stocks will have further to fall when the Great Correction does start. It also means gold prices will experience an even greater breakout.
Gold Price Predictions for Q2 2017
What is the gold price forecast and outlook for 2017? It’s always difficult, nay, impossible to predict where gold prices will go. That goes for the second quarter of 2017 and the rest of the year. That said, a precious metal analysis suggests it’s a good time to be a gold bull.
On the surface, the outlook for gold is a little dim: unemployment is down, the U.S. dollar is strong, interest rates are going up, and the bull-market is now in its ninth year. But the gold price outlook for 2017 is bullish for these exact same reasons.
Unemployment is at 4.7% but the underemployment rate is near 9.5% and most jobs created since the financial crisis have been low-paying, part-time jobs.
The U.S. dollar looks strong, but only because the rest of the world is doing so poorly. Trump inherited a national debt of $19.9 trillion and deficit of around $560.0 billion. The U.S. economy is stagnating and Trump says he’s going to cut taxes and increase spending. This can only lead to more debt and a bigger deficit. Rising interest rates will increase borrowing costs which will exacerbate the national debt.
The stock market is at record levels but it’s only because artificially low interest rates sent income-starved investors into riskier investments like stocks. The broader economy is fragile and the typical bull-market excitement has given way to rising anxiety. The stock market is only being supported right now by hope. And history shows it takes more than wishful thinking for stocks to keep going.
None of this even takes into consideration political uncertainties surrounding Brexit, mounting tensions with North Korea, or President Trump’s promised tariffs with China and Mexico. Then there’s growing concerns about Russia’s alleged meddling in the U.S. election which, former vice president Richard Cheney said, was “an act of war.” (Source: “Cheney Calls Russian Election Meddling ‘act of war,’,” The Washington Times, March 28, 2017.)
Any of these events, and all the unforeseen ones, will boost safe-haven demand for gold in the second quarter of 2017 and the rest the year; potentially sending gold prices to levels not seen since 2011.
Again, despite Wall Street proclamations that stocks are going higher and gold and silver are dead, a gold price forecast and analysis for Q2 2017 points to the opposite.
