Gold had a very volatile year in 2016. The yellow metal closed out the year at US$ 1.159.10/oz. in London (LBMA) with a relatively modest increase of about 9% over the year. This figure is misleading, however, since it underrepresents gold’s wild fluctuation, peaking on the morning of July 6th at US$1.370/oz., reflecting a gain of almost 30% in the first half of the year. Soon thereafter, gold hit the bottom of the market, breaking the US$1,150/oz. floor briefly in the fourth quarter of 2016.

At the beginning of 2016, the market was not expecting the powerful recovery that lay just around the corner. But gold had a strong run in the first quarter of the year and stayed firmly in the mid-US$1,200 range in the second quarter. Then Brexit happened on June 23rd, 2016. Gold shot up from there and hovered between US$1,300 and US$1,350/oz. throughout the third quarter, when it peaked. By and large, last year’s market was guided broadly by the monetary fundamentals: years of money-printing by central banks in major developed economies, in a continuing effort to mitigate the cataclysmic problems resulting from the 2008 global financial crisis. Posted interest rates approached zero, while real interest even went negative. Brexit, of course, added much unexpected uncertainty to the global economy, pushing gold up as a top safe haven. However, entering the fourth quarter, the US presidential race dominated market attention worldwide. The prospect of an interest rate hike on strong US economic indicators also began to seem more immediate, driving up the US dollar and sending gold south. Most analysts were forecasting a US$100-300/oz. jump in the price on a Trump win, and, for a while, gold did move in concert with the polls. But in the end, this did not happen. Likely due to Trump’s promises of infrastructure mega-projects and pro-business policies, his victory surprised the market by actually driving down the price of gold by some US175/oz., to the bottom of US$1,125.70/oz. on the afternoon of December 20th. In fact, the magnitude of the Trump effect was not only on the price of gold. In its aftermath, investors dumped massive volumes of gold holdings. At GLD, a major gold ETF, gold redemption amounted to a net outflow of 135 tonnes between November 9th, 2016 and New Year market open on January 3rd. Thus an event-driven mini-bear cycle lasted most of the second part of the fourth quarter of 2016.

Now, at the beginning of 2017, fundamental economic conditions are unchanged: a world pumped with central-bank-created liquidity from years of quantitative easing in the US, the EU and Japan. Logically, gold should do well in that environment. But the opposing force is the real interest rate expectation in the market, which relates to monetary policies and economic sentiment. Nevertheless, given the unpredictable effects of geopolitics on economic events ahead of us, the only certainty would be volatility. This makes it hard to forecast even the direction of the gold price in the short term, even though the longer-term fundamental and structural issues of the world economy remain. While the media has covered the spectrum of gold price forecasts for 2017 extensively, the most important indicator remains the actions of successful investors like Soros, which speak volumes. He puts his money where his mouth is. We all know that Soros accumulated a strong position in gold back in 2015. In August of 2015, for example, when gold was trading around US$1,100, he bought 1.9 million shares of Barrick Gold Corp., the world’s biggest producer of the metal. In April of 2016, he said gold was the only asset that outperformed in the market environment at the time, and he did what his view guided him to do. Just a few months later, when the gold price was near its peak, Soros Fund Management LLC cut its $263.7 million stake in Barrick by 94%, locking in a very substantial profit. In addition, Soros also cut his holdings in SPDR Gold Trust. With that hugely profitable ‘bet’ he appeared like a lucky speculator seizing the opportunity of the moment. However, having made a huge profit in the metal from liquidating his gold positions, Soros has now, again, more than doubled his remaining holding in Barrack. Soros Fund Management LLC bought 1.78 million Barrick shares in the third quarter, taking total holdings to 2.85 million, according to a regulatory filing. Without second-guessing today’s Soros gold price forecast, his call on gold last year (in agreement with the fundamentals justifying gold), resulting in the sale of a very substantial part of his position in the metal, proved both accurate and profitable, validating his view of the market. The redoubling of his position at the current market juncture demonstrates his positive outlook on gold better than words. Forecasting where gold will be is easy and may be inconsequential. Backing your own views with substantial capital shows conviction and confidence in one’s experience and judgment. Perhaps the most relevant question to investors is at what price and under what conditions to take a position in gold, letting the future unfold, rather than placing too much importance on where and when the gold price will fluctuate. — — Written by Chief Executive Officer, Chairman of Century Global Commodities, Sandy Chim