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Gold prices to trade lower in 2017, say analysts

More price drops expected as precious metal continues to deal with further rate hike expectations, strong dollar

Dubai: Gold bugs in Dubai who are looking for another buying opportunity this year may not be disappointed, with prices forecast to drop further due to a strong dollar and interest rate hike expectations.

Analysts told Gulf News that the precious metal will likely trade lower than in 2016, even as the US Federal Reserve’s decision to adjust interest rates in December is already behind investors’ minds. Prices can move up or down, but the general trend would be on the downside, so the key is to keep an eye on developments that could trigger price falls.

Factors to watch out for in 2017, which can influence the bullion’s prices, also include the strength of the US economy, physical demand from India and China, as well as the implementation of Brexit, when Britain starts the complex negotiations to leave the European Union.

The outcome of the elections in France, Germany and the Netherlands, as well as the presidency of Donald Trump are other key factors to keep a close watch on, according to Nevine Pollini, equity analyst at UBP.

“Gold volatility will continue [in 2017]. Prices will move both ways, with overall downward pressure. I expect gold to be in the range of $1,050  to $1,200 [per ounce],” said Karim Merchant, CEO and managing director of Pure Gold Jewellers.

“Gold prices will continue to be sensitive to movement in interest rate changes, [strengthening of] the US dollar and overall global political situation.”

So far, gold inched up in the first few days of the New Year, with the 24K retailing at Dh140.25 per gram in Dubai. But the “small relief rally” can only be attributed to the fact that the December rate increase and the Fed’s latest comments “have been fully digested,” the greenback and bond yields had taken a breather and markets had shown volatility recently. As of Tuesday, however, stock markets posted some gains, while the US dollar strengthened.

“Gold seems also to be supported by a whiff of Cold War in relations between the US and Russia: the Obama administration has expelled 35 Russian diplomats from the US in retaliation for Russia’s alleged interference in the US presidential elections by hacking Democratic Party members’ e-mail accounts, among others,” said Pollini.

“Our view on gold is mildly negative and we expect it to trade lower than in 2016. However, this is without taking into account the potential impact on gold of Brexit once Great Britain triggers Article 50, or of the various elections to be held in Europe,” Pollini explained.

The analyst also noted that gold can go up if Trump fails to deliver his promises.

“The US economy and the Fed’s resulting approach to monetary tightening will be the main factors affecting gold prices in 2017.”

The US Federal Reserve is now expected to adjust interest rates “more aggressively than previously expected,” with three increases now anticipated in 2017. “If this happens, it will definitely be detrimental to gold prices. And it might well happen as the US economy, in light of the strong macro data released recently, seems quite solid, supported by a robust labour market.”

“Furthermore, Donald Trump’s promised fiscal stimulus, such as tax cuts and infrastructure spending, will most likely reflate the US economy. It remains to be seen to what extent the White House and the Congress will agree on tax cuts in January,” Pollini explained.

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