Some of the biggest financial experts believe that gold has the chance to stage the biggest turnaround in history this year. Needless to say, their predictions are backed by solid observation and of course, their years of exposure to the world of trading.
The negative price momentum
Their first observation regarding stocks is that negative price momentum demonstrates more consistency and perseverance than the positive ones do. This fact has been proven by empirical figures, as well. A stock that has plummeted the most has the “proven” power to outperform the market. We will try and explore why they think that gold has the maximum turnaround potential for 2017.
The plummeting gold demand in the Chinese and Indian markets Both Indian and Chinese jewelry will experience a surge in demand in the coming year. The World Gold Council declared that the global demand for jewelry was down by 21% year-over-year in the 3rd quarter. The Chinese and Indian markets grappled with a shocking blow to the demand for gold. The two largest gold markets of the world faced a crunch in gold demand owing to many factors. In China, jewelry consumption went down by 27% and in India, it went down by 41%.
Why the demand for gold had gone down
The loss of Chinese consumer confidence, imposition of higher taxes on Indian gold, Curbs on Chinese gold import, and demonetization in India are some of the factors that contributed to the plummeting sales in 2016. 2017 is not going to witness any such happening. As such, gold is definitely set for a major turnaround.
The Chinese and US policies are clearly borderline inflationary in nature. Experts feel that this will promote the flow of speculative funds into gold. Donald Trump is presently mulling the reduction in taxes and adding an estimated $7.2 trillion to the federal debt. The debts are expected to touch $20.9 trillion by 2036. On top of that, the US is already saddled with outstanding debt worth $19 trillion today. Even in the absence of any surplus spending, the federal debt is expected to rise to 86% by the year-end. A tight labor market with higher fiscal spending is definitely going to witness higher inflation.
China, on the other hand, has witnessed a surge in credit creation triggered by a throbbing housing market. However, the regulators’ intervention has compelled investors to turn to commodity stocks to hedge the depreciation related to their assets governed by the yuan. It has only been 3 months since the prices of zinc and copper have increased by around 20 to 25%. Gold is soon expected to witness a similar hike in price as well.