The turning of the calendar gives us time to review and reflect upon the course of the previous year amongst significant world markets. Precious metals sit at a unique focal point. They span both millennia– along with their new role in financial stability. All while battling in an increasingly uncertain world. 

First, the raw numbers: 

Gold finished higher for the second year in a row. It rose by $157 (14.7%) to close at $1,309. This as of the final tick on the New York futures market on the last trading day of the year. Silver underperformed on a relative basis in 2017. After outperforming a year prior, it rose by $1.16 (just over 6%) to finish at $17.15 in the futures market. Spot prices were slightly lower in extended trading. This was by late Friday afternoon.

However, let us dig beneath the surface. 

How did gold compare with other major world asset classes over the past 12 months? Below, we show the relative performance of gold versus the most important assets that many precious metals investors monitor on a regular basis:

precious metals chart

 

Points for consideration on the above:

  • The S&P 500, which represents the US stock market, went just over gold to finish higher by 18.8% for the year.
  • Gold came in a close second at 14.7%.
  • Gold miners did not leverage the gains in gold this year. Which were rising by just 8.5%. This is a prime example of why we always recommend a physical gold position even for those looking for leverage to the metals. The mining sector will have distinct periods of underperformance for certain years.
  • US long-term bonds edged higher by just under 2.0%.
  • The CRB index, which represents an average of 19 of the world’s most actively-traded commodities, were mostly flat for the year.
  • Most notably, the US dollar was sharply lower, falling by over 11%.

Safety Assets

We view some to overvalue world stock markets on a fundamental basis. For example, examine the history of dividend yields for the largest 500 companies in the US. This is dating back to the late 1800s. Dividend yields move opposite to stock prices. What we observe below is that current returns are much closer to previous stock market peak levels– than to value buy zones:

precious metals chart

 

Let us view the following five assets which investors traditionally purchase when they are seeking safety from declines in stock markets.

  • Gold – the 5,000-year store of wealth.
  • Swiss Franc – was legally mandated by the Swiss government to be backed by at least 40% gold until the year 2000. Still, to this day, the Swiss National Bank is seen to be more fiscally conservative than most western central banks. The Swiss Franc thus retains a safe-haven status to this day.
  • The Japanese Yen – the Yen has mainly moved in tandem with gold prices since 2007. This high correlation sees a result of investors viewing the Yen as a safe-haven currency in times of volatility.
  • The US Dollar – today it is still close to a world reserve currency that many recognize across the planet.  
  • US 30-year bonds – traditionally seen as the most conservative long-term investment. This is amongst those looking to guarantee a specific interest payment over many years.

 

As we will see, gold outperformed all other safety assets during 2017.

precious metals chart

Safety Assets Change

It is essential for investors to know that the definition of a safety asset will change throughout time. For example, in the subprime / US credit crisis of 2008, as most international markets collapsed, gold fell during the initial crash as the US dollar rose.

Then during the collapse of the dot-com bubble in the year 2000. As the stock market fell, so did the US dollar. What rose in opposition? Gold.

The point is: safety assets do change throughout time. The potential for a breakdown has a strong correlation between gold and yen prices. You can read about this in a recent article.

Moreover, we have shown that the US dollar is forming a crucial long-term top on the charts.  ( “US Dollar approaching critical support”).

Meanwhile, large institutions such as Ray Dalio of Bridgewater Associates, have notably increased their holdings of gold in 2017. (Gold – a tale of two markets).

2017 Precious Metals Summary

In sum, through 2017 we see a confirmation that gold is attempting to regain its status as the safest asset of last resort. This is amongst large investors. Both headlines and gold’s price performance this year prove this point.

All signs point to the emergence of a new rising trend in gold prices. We anticipate regular corrective declines along the way.

The new year will fill with twists and turns. We will be here to provide the most precise analysis possible as these trends continue to unfold.

Wishing you a healthy and prosperous 2018.

 


Christopher Aaron,
Bullion Exchanges Market Analyst

Christopher Aaron has been trading in the commodity and financial markets since the early 2000s. He began his career as an intelligence analyst for the Central Intelligence Agency. He specialized in the creation and interpretation of pattern-of-life mapping in Afghanistan and Iraq.

His strategy and technical analysis have helped his clients to identify both long-term market cycles and short-term opportunities for profit.

This article is third-party analysis. It does not necessarily match views of Bullion Exchanges. Readers should not consider this article as financial advice in any way.

One Comment

  1. Carlos T Mock

    You are forgetting what palladium did this year. It outperformed gold!

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