2016 is behind us and we have started a new year with great gusto and no
small measure of anxiety. The potential for unknown unknowns turning into
banana skins is very high. Right now we are looking at:
- The broad US stock markets & the UK FTSE are
breaking new highs
- Investment flows are rotating from Bonds to Equities on
the back of a Trump driven reflation outlook
- Donald Trump is President Elect
- The Fed has initiated a long anticipated rise in
interest rates
- Global Debt levels as a percentage of GDP has never been
higher
- Britain is going through the painful process of
divorcing itself from the EU,
- France is facing elections where far right and and anti
EU parties may take power
- Italy’s banking system is in crisis with the weight of
EUR 300 Billion in bad debts
- Germany’s Merkel is losing core support and the Anti –
EU forces are gathering power
- China is being buffeted by global protectionist rhetoric
and lacklustre domestic demand, can she manage the domestic
discontented?
What could possible go wrong?
Many of these changes have their genesis in misguided monetary policy,
specifically those pursued by the US Fed in the 1990’s and since, with micro
management of economies via stimulus, artificial interest rates and the
Pandora’s box that is Quantitative Easing. The risk of the “2
a.m. tweet” where policy is poorly stated or misunderstood is very real.
What is of real concern is that many of the themes we identify are based on
developments that are very new and lack much historic context, especially
when one considers the scale of the economies that may be effected.
2017 market performance will be determined by a number of themes.
- Can Trump deliver reflation or are the markets set to be
disappointed?
Trump has been elected on with a mandate to shake up the establishment,
to protect US jobs and to focus internally. The question is can someone
with no political experience, significant conflicts of interest,
despised by the right and liberal factions, within the US political
establishment, deliver? The short answer is that no one knows, but so
far he has proven all is naysayers wrong and you would be a fool to bet
against his form. The USD dollar has strengthened to its highest level
since 1984 and this will certainly hurt US companies’ capacity to
earn from foreign operations and thus suppress GDP.
- Can the Fed normalise interest rates?
The Fed has taken that first tentative step and started its long awaited
tightening cycle. The concern is with debt levels at such elevated
levels, can institutions wishing to refinance do so at newer higher
rates and what will this do to debt affordability?
- Will Britain and the EU agree an amicable divorce or
will it be a nasty drawn-out affair? The EU has appointed a French
bureaucrat as its chief negotiator who is seen as a federalist and
someone who maybe likely to seek to punish Britain for leaving. On the
British side Britain’s ambassador to the EU resigned yesterday. His
resignation note hinted at “muddled” thinking within the British camp.
Outlook for Gold
Positive on continued strong 2016 demand. In 2016 GoldCore experienced
significant increases in our bullion storage programme. Clients moved cash
out of banks which they believe may be subject to bail-in risks as
governments and regulator capitalise the banking systems with depositors cash
deposits. Clients also sold gold proxy investments such as Gold ETF funds and
Digital gold holdings where clients are forced to hold unallocated and
unsegregated gold holdings in favour of GoldCore Segregated and Allocated
gold storage.
We do not see a change in this trend and with strong account openings and a
massive increase in interest from corporate treasurers seeking to diversify
bank risk, we are very bullish for gold demand in the year ahead.
Allocations for gold should be between 5% and 20% depending on a clients risk
appetite. Significant systemic risk is very real and can materialise from a
number of sectors. Bank deposits remain at very real risk and diversification
is advisable.
Gold Prices (LBMA AM)
04 Jan: USD 1,165.90, GBP 949.98 & EUR 1,117.40 per ounce
03 Jan: USD 1,148.65, GBP 935.12 & EUR 1,103.28 per ounce
30 Dec: USD 1,159.10, GBP 942.58 & EUR 1,098.36 per ounce
29 Dec: USD 1,146.80, GBP 935.56 & EUR 1,094.85 per ounce
28 Dec: USD 1,139.75, GBP 931.29 & EUR 1,091.88 per ounce
23 Dec: USD 1,131.00, GBP 921.99 & EUR 1,082.25 per ounce
22 Dec: USD 1,130.55, GBP 916.20 & EUR 1,080.47 per ounce
Silver Prices (LBMA)
04 Jan: USD 16.42, GBP 13.36 & EUR 15.74 per ounce
03 Jan: USD 15.95, GBP 12.97 & EUR 15.34 per ounce
30 Dec: USD 16.24, GBP 13.20 & EUR 15.38 per ounce
29 Dec: USD 16.06, GBP 13.10 & EUR 15.36 per ounce
28 Dec: USD 15.85, GBP 12.96 & EUR 15.22 per ounce
23 Dec: USD 15.74, GBP 12.85 & EUR 15.06 per ounce
22 Dec: USD 15.77, GBP 12.78 & EUR 15.10 per ounce
