Rising Investment Demand Suggests that Gold Prices Could Soar
The gold price outlook for 2017 looks solid. Fundamentals suggest that the yellow precious metal could soar, and this year could be the second one in a row in which gold prices increase.
You see, in 2013 and 2014, all of a sudden gold appeared to be a bad investment. We were told that gold isn’t worth holding when interest rates rise. This thesis caused a sell-off in gold, sending the precious metal plummeting by 30%+.
What led in this sell-off in gold? It was the exchange-traded investment products, such as gold-backed exchange-traded funds (ETFs), that faced major drawdowns. Their holdings plummeted, increasing the supply of gold in the markets, and causing the price to drop.
Fast forward to now: we are starting to see those who ditched the yellow precious metal come back and buy it again.
Consider this: in 2016, gold-backed exchange-traded products witnessed inflows of 531.9 tonnes of gold. In 2015, these gold investment instruments had net outflows of 128.3 tonnes. (Source: “Gold Demand Trends Full Year 2016: Investment,” World Gold Council, February 3, 2017.)
Note: the inflows of 531.9 tonnes was the second-highest on record.
But don’t just stop here.
As a whole, investments in gold are increasing. In 2016, gold investment demand was 1,561.1 tonnes. This includes demand for gold-backed exchange-traded products, gold coins, and gold bars. In 2015, gold investment demand was 918.7 tonnes.
If you do simple math here, investment demand for gold soared 70% in 2016. This was highest level since 2012.
Don’t take the sudden change in gold-backed exchange-traded products and investments lightly. At the very core of this issue, it suggests that investors’ sentiment toward gold has turned in a positive way. Investors really favor the precious metal, and they are showing this by buying.
Why Big Gains in Gold Prices Could Be Ahead
As I see it, 2016 was a critical year. The gold price increased for the first year since 2012.
This phenomenon could cause the precious metal to pop onto the radar of investors who haven’t been following it at all over the past few years. Why? Because prices increasing after a period of constant declines mean that long-term trends could be turning.
This could bring in speculative capital, resulting in spikes in the price of gold. Don’t be shocked if the yellow precious metal prices shoots to over $1,550; that’s 25% above the current price.
Obviously with time, we will know more.
Where’s The Next Big Opportunity?
When I have written about higher gold prices in the past, I have said one thing over and over again: if the price of gold spikes higher in 2017, it wouldn’t be shocking if investors jump to mining companies to get the leveraged gains.
But I have never talked about which companies could be the biggest beneficiary.
Here’s what must be understood: if gold prices shooting through the roof are the case for the rest of 2017, it will not be shocking to see gold companies with solid cash flows and strong balance sheets get the most attention. The gold price rising 25% could cause their stock prices to double or triple in a very short time.