“Whilst the pressure on the gold price will be predominantly negative in the coming months we continue to believe there are sizable risks for 2017 that are likely to support the gold price,” Butterfill said.
About 82% of headline inflation moves in the U.S. can be attributed to crude oil price moves over the past four years, and the recent rise in crude prices could translate to year-end inflation close to 3%. While the Fed will push up rates to head off the inflation, policymakers will not be too aggressive on rates since the U.S. economic recovery could be derailed.
“An ineffective Fed would be supportive for gold in the longer-term,” Butterfill said.
Moreover, a stronger U.S. dollar could weigh on large multi-national companies’ overseas revenues. The potential damage to company earnings during the next reporting season could weigh on prices when optimism in the equity markets remain high, supporting a potential trade on safe-haven precious metals.
Other notable risks include rising populism in Europe and political uncertainty. President-elect Donald Trump still needs to make good on his promises and he faces an uphill battle with negotiating a higher debt ceiling.
Investors can gain exposure to precious metals through a number of physically backed ETF options, including ETFS Physical Swiss Gold Shares (NYSEArca: SGOL), ETFS Physical Silver Shares (NYSEArca: SIVR), ETFS Physical Platinum Shares (NYSEArca: PPLT) and ETFS Physical Palladium Shares (NYSEArca: PALL). ETF investors can also use the ETFS Physical Precious Metals Basket Shares (NYSEArca: GLTR) as a catch-all of all four precious metals.
For more information on the precious metals market, visit our precious metals category.