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VanEck believes in longer term positive environment for gold

VanEck’s portfolio manager and gold strategist, Joe Foster, says that gold should be in a base-forming phase in 2017, as a precursor to a long-term bull market.​

“Although the gold market consolidated on US dollar strength, we continue to believe in a positive environment for gold in the longer term,” Foster says, referring to the financial risk related to increasing political populism around the globe, and specifically in Europe, as well as the potential for increased investment interest in the Islamic finance industry after the recent release of a new gold investment Standard.​

Political developments within the European Union (EU) could have an influence on the gold market, Foster says, writing that the rejected constitutional referendum in Italy has empowered opposition parties critical of the EU. He believes that frustrated populist voters feel that post-crisis policies of the established parties have brought coordination of regulations, monetary experiments, austerity, and debt expansion but failed to generate needed jobs.
“Furthermore, the implementation of Brexit in 2017 will pose significant risks to the European economy,” says Foster. Populist parties will play a larger role in the upcoming elections in the Netherlands, France, and Germany as well. Gold could benefit if risks of an EU breakup increase.​

Foster cites a second potentially favourable development for gold which occurred when the Shari’ah Standard on Gold (the ‘Standard’) was released by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). The Standard, for the first time, sets out specific rules for gold as an investment in the Islamic finance industry. Previously, those who wanted to own gold were compelled to invest only in jewellery. “The new Standard could help increase demand for gold bars, coins, ETPs, and stocks within a significant segment of the global population that already has an affinity for gold,” Foster explains.​

“We believe that many of the global financial risks will surface in 2017, reversing the positive sentiment in the stock market and US dollar to gold’s benefit. Such risks include Trump’s policies, particularly changes to trade treaties, immigration policies, and national debt, as well as disarray in Europe and strife in the Middle East,” Foster adds.​

Historically, gold stocks particularly benefit from a rising gold bullion market. For example, when the gold price rose 8.6 per cent in 2016, the NYSE Arca Gold Miners Net Total Return Index (GDMNTR) gained 54.4 per cent. The MVIS Global Junior Gold Miners Index (MVGDXJTR) gained even more, returning 75 per cent. Reasons for this spectacular performance of gold stocks include operating results and overall financial discipline of the gold companies.

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Up we go.​