Gold A look back at 2016, with an eye to 2017

Gold - 2016 in review

By all accounts, gold had an extremely eventful 2016. The year started off in fine fashion with the precious metals complex showing real strength for the first time since peaking over five years ago, back in September of 2011. We believe the key driver of the move higher was falling real yields (nominal yields, less inflation), particularly in Japan, which surprising world markets by announcing they were "going negative" in January.

News outlets react to the Bank of Japan announcing negative interest rates. Source: Reuters

Gold continued to march upwards through the first 6 months of the year, the threat of Brexit adding to the tailwinds of a rising gold price. Contrary to popular belief, the threat turned out to be real and Britons voted to leave the European Union (EU), ushering in a period of "peak gold bullishness" as we saw dramatic falls in the British Pound and the potential for a broader breakup of the EU.

Daily chart showing the huge one day drop in the British pound following the Brexit vote. Source: Incredible charts

This high degree of "gold fervor" was highlighted by the fact that the net speculative positions in the precious metal whipsawed from near all time lows, to all time highs in just the first seven months of 2016.

Chart showing changes over time in the commitment of traders (CoT) net speculative positions in the gold futures market. Source:

However, as it became clear that the sky wasn't caving in (at least in the near term), things began to stabilize and so too did the price of gold, which consolidated above US$1,300 until the end of September. October saw a change in conditions as market participants positioned themselves heading into the U.S. election, particularly in the currency markets where the U.S. dollar (USD) started strengthening significantly against its major trading partners. As gold price movements are typically inversely correlated to the USD, this ushered in the first period of real weakness in gold for the year with price breaking below the key support level of $1,300 before stabilizing around the $1,250 mark.

Then came arguably the defining moment of the year as Donald Trump defied nearly all polling data to comprehensively win the electoral vote to win the US Presidency. The market reaction to his election has been swift and decisive and we saw a clear "risk on" move in the markets, resulting in an unprecedented sell off in the bond market, causing yields to rise and the USD to breakout - both of which is typically bearish for precious metals.

Gold played to the script and we saw a swift move down through key support levels, resulting in an unprecedented 7 weeks in a row of falling spot prices between the election and Christmas, before rallying slightly in the final days of the year to finish just off 6 month lows. However, even with a terribly weak last quarter, Gold still managed to close the year at $1,151, up 8.5% for the year.

A summary of the key events that drove the gold price in 2016, and the price action that they caused is summarized in the chart below.

However, it wasn't all plain sailing...


Created with images by istara - "gold bar gold bar"

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