Gold Increase Only 5.7% Over The Past Year! The Debate Continues
- Sandy Chim, President & CEO, Century Global Commodities Corporation
NOTE: All gold prices in this article are derived from the London Bullion Market Association.
Despite the recent pullback, the general impression is that gold has performed very well in 2016, in the aftermath of multiple events: a big surge from a multi-year low at the beginning of 2016 signalled a clear cyclical rebound; the cataclysmic Brexit vote, whose impact on global markets is still unfolding, months after the referendum in the UK; the comedy/drama of the US election – just to name a few.
Year to date, gold has delivered an impressive 17.8% increase, representing one of the better years over the last few cycles. However, the calendar year is an arbitrary human invention that does not always reveal more meaningful economic trends.
It might be more useful to look at a year’s movement in the price of gold to see it from different perspectives. The following table and chart show other ways to evaluate how gold has done – and the picture may not be as rosy as we thought.
From a bottom of US$1,049.40/oz (on December 17, 2015), to a July 6, 2016 peak at US$1,366.25 gold had a spectacular run, increasing more than 30% in six months. But examining the full-year picture takes the shine off this spectacular performance.
The hard reality is the one-year performance of gold is a boring 5.7% net increase over a volatile year of wild fluctuations due to unexpected global events that are still resonating.
It is indisputable that the cycle has turned (see the chart above). Global macro-economic conditions, such as the aftermath of years of quantitative easing in America and Europe, remain very conducive to a strong price for gold, both as a commodity and a currency.
But it is also still very much under the spell of the long-overdue US Fed rate hike. Even though the rate hike has been expected for quite some time and will be gradual, according to the Federal Reserve, it is by far the strongest opposing force that suppresses the price of gold at every turn.
This debate will continue to trigger volatility for months to come!