Factors affecting gold prices in 2017 - Prithviraj Kothari, MD, RSBL

Going past the revolutionary Indian Budget 2017, where I did find that some key government initiatives like capping the maximum cash donation to Rs. 2, 000, steps to avoid money laundering and so on are noteworthy, I did feel that Bullion Trade reforms that were the key to the survival of industry did not come through.

Gold is hovering around the psychological mark of USD 1,250 and is a direct beneficiary of US dollar weakening. Above which, Gold can reach to a high of USD 1300 with a range of Rs. 28, 000 to Rs. 31, 000. I wouldn't ignore the fact that US economy has shown resilience in the recent months causing the Dollar to strengthen but Gold hasn't lost its shine completely. To support this statement, Total global holdings are above 57 mio oz the highest point of the year.

The major factor being; cost of production, this is around USD 1,000 to USD 1,050. Domestic prices in Gold follow the International Gold prices but are coupled with the Rupee. As the US dollar strengthens it does put downward pressure on Rupee (excluding other macro factors of Indian economy) causing a balance when the international gold prices weaken. While USD 19 is a level to which Silver should look forward to reach from the current price of USD 18.40.

I have penned down the global risks which would be a significant catalyst in not only supporting Gold prices at these levels but also push it further giving the investors a good return on their investments.

Trump factor:

You guessed it right; a new president of US is set to prove his pre-election commitments. Expectations are sky high and he has started with immigration reforms. Not too sure whether the immigration was the right book of work to pick up considering the market is waiting for tax reforms and infrastructure spending as his key items to deliver but how quickly can he get it done will surely swing markets in wild directions?

BREXIT blues:

One of the key events that the world witnessed last year was Great Britain splitting from Euro region. Negotiating trade agreements will not be an easy task on May's hand, and only if she had a magic wand, the hundreds of trade agreements would be negotiated without a hitch.

EU elections:

4 key regions under EU are going for Elections this year:

Netherlands: 15th March, France: 7th May, Italy: June, Germany: Aug- Oct.

Here comes the key point, Marine le pen has made clear that she wants France to leave the EU and restore the franc. You guessed it right; if she is elected do we see FREXIT a reality when France is second largest economy of European Union?

Trade War:

Recent news stories have covered the comments from officials on both sides of the Atlantic where US have laid claims on Germany, China and Japan as countries undervaluing their reserve currency to bolster trades.

Global terrorism threats:

Geopolitical tensions in Ukraine, Syria, South China Sea conflict etc have ensured that the world peace is often disrupted. Unfortunately, it remains an ongoing threat causing safe haven appeal of Gold prices to grow.

Time will tell whether my 2017 range for Gold and Silver prices will be a reality or not, but the point does remain how the Gold and rest of the Bullion metals provide adequate returns to the investor class that have shown faith by investing in them.