What can we expect from 2017?

1. Political changes could be an important risk

Just think about the possible political changes we might see this year: Hong Kong’s Chief Executive Election in March, France’s Presidential Election in May and Germany’s Federal Election in October, among others.

We don’t know how Trump’s policy will truly affect relationships between the US and other powerful economies. Its relationship with Russia could improve if Trump decides to abandon sanctions against Russia.

The US seems to be entering into a trade war against China, which is ready to retaliate and boycott American products in China. Trump has threatened to apply tariffs of 45% on China’s exports to the US, which could increase worldwide tensions and trigger a sell-off of the companies’ shares most affected by those acts.

2. The American stock market is overly overvalued

American shares are currently expensive, with some saying that they are so overvalued that any negative economic news could trigger a large sell-off in the markets. Market corrections are usually good for Gold, and as we are currently seeing American indexes hitting record highs, one has to wonder when a correction may happen.

3. The American economy might not be as strong as we think

There are plenty of indicators that show how fragile the US economy is. Once investors pay more attention, fears for what 2017 will bring will most likely begin to rise.

Let’s take the example of the job situation in the US. According to the FED, full employment characterizes a labour situation with a median unemployment rate of 4.8%. The labour market seems to be in full swing in the United States. The unemployment rate reached 4.7% in December 2016.

The unemployment rate can be described as the percentage of the labour force that has no job. Those persons are willing to work and must be actively seeking a job. This statistic is an important figure for the FOMC in its decision making process about the evolution of interest rates. This measure of unemployment shouldn’t be considered as THE key measure though, but as one among several others available to understand the job situation in regards to the number of jobless persons.

Let’s not forget that the unemployment rate gathers only people that are jobless and looking for a job. So, one can safely assume that the real number of people being out of work is certainly higher than the official rate, when taking into account those that have given up looking for work, as well as workers that accepted part-time job while looking for a full-time job.

It may be tempting to think that a decrease in the unemployment rate is a positive thing, but it’s actually more complicated and ambiguous than that.

Take consumer spending as another example. This accounts for more than 60% of the American GDP. And yet, consumer debt keeps rising, which is now at a higher level than seen before the last financial crisis. According to Nasdaq: “Credit card debt costs a typical household $1,292 a year”. More and more Americans are in debt and are struggling to pay back what they owe. Most Americans also have no emergency funds.

4. A strong dollar is usually negative for Gold prices

When the USD goes up, Gold prices tend to go down, and vice-versa. One reason for this is because Gold is denominated in USD, so any price changes of the USD will affect Gold prices. Another reason is that a stronger dollar usually means a stronger American economy, which is bad for Gold, as it is considered protection against economic uncertainty.

The American Dollar was propelled upwards in view of rising interest rates. Higher rates mean that investors are looking to invest their money in the USD, as it will be more profitable for them. Gold is usually going down in times of rate hikes. But if you look back in time, after the FED has increased interest rates, the USD went down.