Stocks and Gold Hold onto Respectable Gains for the 1st Half of 2017

Although gold has come under pressure both this week and this month, its price increase for the first half of 2017 is respectable. In fact, it is on par with gains achieved in both the Dow Jones Industrial Average as well as the Standard & Poor’s 500 this year. Both equity indexes, along with gold, scored roughly 8% gains over the last six months.

The only equities index which outperformed all three (gold, S&P 500, Dow Jones) was the NASDAQ Composite. The tech heavy index gained roughly 14% year to date, and with the second quarter of the year ending today, is head and shoulders above other investments in terms of returns realized during the first half of 2017.

As far as gains achieved during the first half of 2017 in the Dow, S&P 500, and gold - there is a fundamental difference. The major distinction is that gold realized these gains during the first quarter of 2017 and held onto most of those gains during the second quarter, which resulted in a net loss of 0.7%.

In an interview with MarketWatch, Rob Haworth, senior investment strategist at U.S. Bancorp Wealth Management, said, “After a strong start in the first quarter, gold has stabilized into a broader trading range in the second quarter, making little to no additional progress. Support to start this year has rested in a weaker U.S. dollar and low real interest rates.” But that “looking to the back half of the year, these drivers seem unlikely to be repeated. Real interest rates have risen over the past month, and [U.S. Federal Reserve] policy is to provide further support to real rates, creating additional pressure on gold.” 

As we spoke about in yesterday’s report, it is the current stance of the central banks, both in Europe as well as the United States, that could provide the greatest pressure on precious metals pricing. After almost ten years of consciously keeping interest rates at a minimum and flooding the financial markets with capital, now both the ECB and the Federal Reserve are making a concerted effort to reverse that trend as they become less accommodative.

This significant policy shift by the Federal Reserve should have led to an extremely bullish undertone for the U.S. dollar. However, market participants have witnessed the exact opposite with the dollar index losing value during the second quarter of this year.

Supportive of gold pricing continues to be the “uncertainty factor,” as well as geopolitical hotspots. The uncertainty of the current administration’s ability to deliver campaign promises composed of major tax cuts, initiation of major infrastructure projects, regulatory reform, as well as a revamping of the current healthcare program in the United States continues to raise concerns.

In an interview with Bloomberg News, Bob Iaccino of Path Trading Partners relayed conviction that given the strength of the global economy and global equities markets gold pricing is holding up rather well and should, in fact, be trading lower than it currently is. He believes current bullish sentiment is a reflection of the underlying concern for the “undertones of the White House,” as well as current geopolitical time bombs (Syria and North Korea).

The first half of this year has been riddled with surprising twists and turns that most analysts would have considered fiction a year ago. To say that we are living in a time with incredible uncertainties ahead would be an understatement. Therefore, we can only hope and pray that the last half of this year will contain more economic prosperity and peace.

Wishing you as always, good trading,