Looking Back at Precious Metals in 2016

The Market Gage conducted a Q & A with Walter Pehowich to determine the high (and low) lights from 2016.

After a lackluster 2015, gold took off in January of 2016 (up 25%). What were the key causes of this rally?In the beginning of 2016, spot gold was trading just below the $1,160 level and the dollar was trading at the 101 level. As the data in the first quarter revealed a languishing economy, the dollar lost ground to other currencies and gold rallied. That first quarter data lacked any good news, keeping the Fed’s hands tied, so it became evident that the December, 2015 rate hike was a one and done event for the time being.

In my first comment in January 2016, I wrote that I expected no rate hikes in 2016. My reasoning was that I expected poor economic news to be the norm and a very uncertain presidential component to be a factor. One must not forget that the Brexit voting results on June 23 gave the price of gold a boost. It wasn’t until July, 2016 when gold reached a high of $1,375, that economic data started to improve increasing the chances of a rate hike. It’s at this point that the gold rally stalled. Moving ahead to the surprise results of the Presidential election, the equity market took off and many retail gold investors sold their ETF holdings in exchange for the hope of four years of strong economic growth under the Trump administration.

Silver soared in 2016, both in coin sales and availability, especially inflow into ETF funds. What kept silver such a firm bet in 2016?  With poor economic data all over the news in the first half 2016 and on-going name calling in the Presidential election, the inflows into the silver ETF continued at a record pace with 2016 seeing an all-time high at almost 675 million ounces. Many financial advisors I spoke with indicated that their retail investors preferred silver over gold because many believed at that time that the price of silver had a better chance of tripling, where gold would struggle to set a new historic high.

What would have been the most advantageous precious metals investment on Jan. 1, 2016?  For the short term investor, it seemed the most popular investment were the ETFs in 2016. For the long term investor, physical gold and silver always trumps (no pun intended ) any other precious metals investment. The reason? In the times we are living in, with terrorism, currency wars and cyber war issues facing many banks and corporations, a hard asset like Gold and Silver is a wise investment to secure a truly balanced portfolio.

Has Dillon Gage Metals seen investor interest in precious metals go up across the board? In broad terms, how did 2016 measure compared to one year ago?Economic uncertainties always bring new clients in the fold. In 2016, we witnessed negative interest rates pop up all over the globe. Italy’s banking problems, Greece’s continued economic crisis, and the Brexit vote all brought in new physical investors to the arena. As it was different here in the States in 2016, the choice investment was the ETF. I view the ETF investor as a short-term investor. To prove my point, right after the election we witnessed the tremendous exiting out of the ETF funds. So, we saw better physical sales overseas and weaker demand here in the States in 2016.

Disclaimer: This editorial has been prepared by Walter Pehowich of Dillon Gage Metals. This document is for information and thought-provoking purposes only and does not purport to predict or forecast actual results. It is not, and should not be regarded as investment advice or as a recommendation regarding any particular security, commodity or course of action. Opinions expressed herein are current opinions as of the date appearing in this editorial only and are subject to change without notice and cannot be attributable to Dillon Gage. Reasonable people may disagree about the opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate its ability to invest for a long term especially during periods of a market downturn. No part of this editorial may be reproduced in any manner, in whole or in part, without the prior written permission of Dillon Gage Metals. This information is provided with the understanding that with respect to the opinions provided herein, that you will make your own independent decision with respect to any course of action in connection herewith and as to whether such course of action is appropriate or proper based on your own judgment, and that you are capable of understanding and assessing the merits of a course of action. You may not rely on the statements contained herein. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. You should consult your advisors with respect to these areas. By posting this editorial, you acknowledge, understand and accept this disclaimer.