Gold prices trended slightly down by close of day yesterday, Tuesday, Jan. 24, 2017. However, the loss is only seen in recent days as the dollar index has improved slightly despite its negative trend for the last couple of weeks. Since the beginning of 2017, gold prices have hit highs that were quite unexpected. Spot gold prices declined slightly with many analysts citing a market correction due to a “technical” error that previously drove the prices up.
Although gold prices hit a two-month high on Monday of this week, it was unable to fully capitalize on the declining dollar due to falling gold demand in China. Spot gold prices are projected to decline even further as more technical corrections get underway. Gold prices have reached over $1,219 per ounce this year as the dollar declines and political uncertainty remains. However, these market reactions are considered temporary and will correct itself to a more stable gold price as the political policies unfold.
Drivers for Gold Spot Prices and Futures
Recent events in the U.S. and Europe alongside the decline in gold demand in China will be drivers for where gold spot prices and futures go next. Since President Trump’s inauguration last Friday, he has signed several executive orders, including the withdrawal from the Trans-Pacific partnership. Analysts are unsure how the removal of the U.S. from this trade deal will affect the market, global trade and the U.S. economy overall.
This continued uncertainty comes on the coat tails of the United Kingdom’s exit from the European Union. The British Prime Minister, Theresa May, pushed to trigger Article 50 in order to remove Britain from the E.U. The U.K.’s Supreme Court ruled that Parliament must agree to enacting Article 50 and the Prime Minister cannot make that judgment alone. As this withdrawal continues to drag along, Britain and their foreign investors remain unclear as to what trade will look like in the next several years.
Will Technical Corrections Be the End of the Story?
Technical corrections are still expected to affect gold prices in the very near future. As strong, emotional market reactions begin to fade, we will begin to see the true value of gold for this year. However, the technical corrections may not be the end of the story, even in the short term. As executive orders become law or get vetoed, as elections in Europe come to an end and as Britain makes its exit from the E.U., the market will continue to be impacted. Has gold hit its peak? Maybe for the short term, but with many factors coming into play it could be a bright spot for the future.
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