As in many other spheres, two momentous and largely unforeseen events rocked the precious metal markets in 2016. The reaction to the first – the vote to leave the EU – was largely in line with market expectations. The reaction to the second – the election of Donald Trump to the US presidency – was more surprising.
With many people seeing the Brexit vote as being an economically destabilising event, it was unsurprising that precious metal prices jumped sharply because they are a traditional safe haven for investors. The sudden, sharp fall in the value of sterling exacerbated this rise for those trading precious metals in the UK.
Most forecasters expected precious metals, and gold in particular, to rise sharply should Trump be elected. In the event, precious metals actually fell sharply while stock markets rallied, perhaps due to his overt ‘pro-business’ rhetoric. As we move into 2017, however, the decline in prices now seems to have reversed and they are rising again.
This could be seen as a dawning realisation that Trump’s much-touted vast infrastructure spending will inevitably bring considerable inflation into the system. But it could equally perhaps be considered as a normalisation back to the longer term trend in these commodities established in the first half of 2016, before these events took place.
If we ignore last year’s volatility seen around these events, the overall picture is of a steady, long-term bull market within precious metals which, new shocks excepted, we can expect to continue in 2017.
Despite a very strong performance in the first half of 2016, which saw the price rise almost 30% from $1,062 (£845) per ounce in the new year to a high of $1,370 by July, the gains were largely surrendered in the second half, with gold closing the year at $1,140/oz, albeit still showing a healthy gain of more than 7% in the calendar year.
The start of 2017 seems again to have brought positive sentiment into the gold market. The yellow metal rose consistently during January and, at the time of writing, stands at $1,239/oz, an 8.7% rise in a little over a month.
While there is always a real risk of some correction after such a marked price rise, the current level is broadly similar to that at which gold was trading immediately before the shock of the Brexit vote. It is interesting to note that the gold price has also recently gone through its 100-day moving [the average closing price during the past 100 days], which many see as highly significant and bullish signal.
As is usually the case, silver largely tracked gold during 2016. As is also usual with this smaller market, the price rises and falls were slightly more dramatic for silver.
Having opened 2016 at a rather depressed $13.58/oz, silver rose a staggering 52.5% to a high of $20.71/oz by August before retreating. It then fell steadily in the second half of the year but, perhaps due to relatively robust sentiment in the industrial sector, did not react as adversely as gold to the election of Trump.
Silver closed the year some 16.7% up at $15.85/oz and, like gold, has started 2017 in buoyant mood, climbing almost 12% in a little over a month to $17.74/oz.
Platinum’s performance in 2016 also correlated heavily with gold. Its discount to gold remained relatively consistent throughout the year, albeit it at a historically huge discount of more than 20% for a metal which has usually traded at a premium to gold.
Platinum gained 44% in the first half of 2016, rising to a high of $1,177/oz, before declining in H2 to end the year a little over 10% up at $906.
At the start of this year, platinum was the sharpest rising precious metal, gaining more than 9% in the first fortnight of trading, perhaps driven by the supply deficit also evident in the palladium market. Platinum has since risen more steadily and stands at $1,008/oz.
Palladium was the precious metal to largely buck the trends of 2016, and was broadly unaffected by the geopolitically driven volatility seen in other markets.
It was somewhat less volatile than the other precious metals overall, rising fairly consistently throughout the year and closing at $684/oz, a rise of 47%.
Driven by continued industrial demand and ongoing concerns over global supply shortages, palladium has carried this positive sentiment into 2017 and risen a further 12.3% to hit a current price of $768/oz, once again making it the best performing metal in the complex.
Charlie Betts is managing director, The Stephen Betts Group