In the world of finance, 2017 turned out to be a very interesting period for traditional investments.
Propelled largely by optimism generated by US President Donald Trump’s pro-growth policy agenda, stock markets rallied to new highs that were far beyond what most expert analysts had anticipated.
Non-traditional assets fared well, too. Markets quickly became familiar with terms like ‘Bitcoin’ and ‘Blockchain,’ and investors with little or no trading experience became millionaires in well-publicized media trends covering the cryptocurrency phenomena.
As it turns out, the unreported story of the year may have been in the broader commodities space with gold prices surging during the fourth quarter.
Market Outlook 2018
To begin assessing the likely path for gold markets in 2018, it is important to have an idea of why there is gold and silver money in the first place. There are many advantages to explain why investors have traditionally moved into gold assets. This includes the use of gold as a store of value, as a hedge against inflation, and as a protective safe haven instrument likely to gain during periods of economic turmoil and uncertainty.
Trends are often much more common amongst those investing in gold for wealth and retirement growth over time. There is a general consensus within academia’s modern portfolio theory that some precious metals exposure is warranted in most cases to smooth the volatility that may occur when stock markets do eventually decline.
All of these benefits go above and beyond the simple collective value of gold coins, gold jewelry, and other assets that use precious metals as their base. Commodities prices are dictated by a number of different influences, and when we are dealing with the industrial sector there are often additional factors in determining what causes trends in silver markets to fluctuate over time.
Source: Bureau of Labor Statistics
The chart above shows recent trends in the Consumer Price Index. This is an indicator of price changes at the consumer level, and a central metric in assessing inflationary trends that actually matter for most of the population (i.e. being able to purchase items at the same rate). High-interest rate environments tend to be characterized by volatile tech stocks and higher price valuations in precious metals, so the trends here do support that outlook for the next several quarters and likely the remainder of 2017.
Blockchain markets might dictate the future of asset transaction, but there must be an asset to transact in order for exchanges to be made. Investors may continue to move into gold this year if consumer price inflation erodes the value of the US Dollar and stock markets broadly flatline or fail to develop another catalyst.
Here are some further views from the well-researched and often-controversial Peter Schiff on the topic: