2017 Predictions - Gold, Silver, PGMs, The Dollar, Markets And Geopolitics

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Includes: ABX, CDE, FCX, FNV, GFI, GG, GOLD, HL, NEM, PAAS, RGLD, SAND, WPM
by: Lawrence Williams

Summary

Will the Trump Presidency last full term or could we see a President Pence?

Will US-Russian relations improve under the Trump presidency, thus easing global tensions/.

Will the US Fed be able to meet its rate setting program?

Prediction for the gold price - up 20% during 2017. Gold:Silver ratio to fall to 65.

Prediction for followed gold stocks - up around 100% in 2017.

This is the time of year that those of us who are brave - or more likely stupid - come up with some predictions for the year ahead. No doubt if they are horrendously wrong, which is the most likely outcome, they may be consigned to the dustbin of history, but if any are correct I will no doubt be dining out on them for the whole of 2018.

So let's look at what this observer considers will happen during the year ahead for the precious metals, precious metals stocks and the geopolitical drivers behind what I see as the likely price trends.

The prime trendsetter will be the ramifications flowing from the inauguration of Donald Trump as President of the world's most powerful nation. Trump is, to say the least, prone to foot-in-mouthitis - or perhaps that should be twitteritis given his apparent propensity for tweeting his innermost thoughts in the early hours of the American morning. He may well take up the role of the world's most influential politician - although Trump and politician - certainly as far as the diplomatic niceties usually are concerned - could be considered something of a contradiction in terms. We actually doubt if a Trump Presidency will run full term. Perhaps impeachment, or resignation over past indiscretions, may lie ahead for The Donald, but the Presidency may well survive 2017, although with the American political divide ever deepening. How about a President Pence should Trump fall from grace - what would be his policies?

U.S.-Russian relations may well improve with the Trump/Tillerson (assuming the latter's assumption of the position of Secretary of State is not blocked) and some of the damage to relationships over the unproven hacking allegations may be undone. As an observer from outside the 52 States we do see a substantial degree of hypocrisy at play. It seems to be OK for the US to interfere openly in another country's election process (Ukraine etc.) but not for its own processes to be compromised by person or persons unknown, with the blame laid on Russia and President Putin himself. The latter has described the American accusations as fantasy, and sour grapes over Hillary Clinton's defeat in the Presidential election. Perhaps it is Putin's successes in possibly helping bring the Syrian civil conflict to some form of conclusion, albeit in alliance with the demonized President Assad, which is what really rankles, with the US-led regime-change efforts having come to naught over five years of passive and active support for the anti-government factions.

We suspect that Islamic State will be defeated on the ground in its Iraqi and Syrian strongholds, although, like the hydra, will rear other offshoots elsewhere. The defeat in its heartland will likely unleash terrorist atrocities in major population centers throughout the West - not even the USA will be immune despite any moves the Trump Administration may make in restricting Muslim immigration. This will just serve to build resentment within the existing Muslim community some of which may already be radicalized.

We suspect also, on the geopolitical front, that there will be some kind of military confrontation between the US and China - falling well short of outright war - over the latter's expansions over the disputed islands in the South China Sea. An increase in tensions in this volatile region could well be positive for gold (although the latter's price performance in the light of various 'black swan' events in 2016 does not look too promising for the year ahead). With gold, and all its interested parties, not the least of which would seem to be China and Russia - who knows?

So what of the markets? Any Trump bounce will likely be shortlived as far as general equities are concerned. We anticipate the Dow will almost certainly breach the magic 2000 level, but that this heady rise will be shortlived and it will come crashing down as the year progresses - maybe by not as much as some 'experts' are warning - but a substantial fall nonetheless. This will cause the Fed to once more delay its proposed interest rate rises and this will lead to 'déjà vu all over again' in terms of a rising gold price, but this time it may well not be halted on Independence Day and continue in the second half of the year too with the dollar falling in the light of Fed inaction on further interest rate rises and a fallout from the realization that the Trump Presidency is not the panacea for all the US's financial ills.

So where do we see gold and the dollar index by the year end? The former could well hit $1,400 or higher and the dollar index fall back to 95 from its current level of around 103. If these predictions are correct silver could again be the precious metal of choice. We suggest that the gold:silver ratio (GSR) under this scenario will fall to around 65 - it's 71.5 as I write - and the combination of a GSR of 65 and a $1,400 gold price could see silver soaring to $21.50. Not nearly enough to satisfy the true silver bugs - but give it time!

We don't think PGMs will do well as industrial output does not look like picking up sufficiently to have a significant positive price impact, but they would likely be dragged up by the higher gold price, assuming our overall scenario is correct. We could thus see Platinum at around $1,050 at some stage during the year and Palladium hitting $775. Nearly half the precious metals price increases though would be due to the falling dollar index.

So where do we see gold and silver stocks under this scenario? Most of them, failing technical and political difficulties, could well double in price from their current levels. We see no reason to adjust our most recent stock picks as providing the best upside options, sticking to our choices of the precious metals majors as being best able to ride out downturns without total collapse, if our metal price predictions are incorrect. These have all mostly done extremely well since we recommended them here a couple of weeks ago (See: Silver Leads The Way In Precious Metals Stock Performance), along with the recent precious metals price pickups.

We also added to our listing in an article published here on December 23rd and came up with Barrick Gold (NYSE: ABX) and Newmont Mining (NYSE: NEM) the world's two largest gold miners as the "go to" stocks for institutional investors, along with recovery gold stocks like Goldcorp (NYSE: GG) and Gold Fields (NYSE: GFI) as well worth following assuming a rising gold price scenario. Freeport McMoRan (NYSE: FCX) could also do well if copper and oil prices hold up, or advance. We suspect all these could be outperformed by silver and gold miner Hecla (NYSE: HL). Royalty and streaming stocks Franco Nevada (NYSE: FNV), Royal Gold (NYSE: RGLD), Silver Wheaton (NYSE:SLW) and Sandstorm Gold (NASDAQ: SAND) would also be likely positive buys if gold performs reasonably well in 2017. (See: GLD Drops 158 Tonnes Since Independence Day). We should also add in Randgold (NASDAQ: GOLD) as being perhaps the most solid performer in the sector.

So what target prices do we see for the stocks we would likely be following. The table below is adjusted for an approximate doubling in price during the year, but with our latest assessments of prices likely to be reached on the likely performance of individual stocks above or below the overall 100% increase.

Stock

Price 29/12

Target price

Barrick Gold

16.19

32.00

Newmont Mining

34.88

70.00

Goldcorp

13.75

30.00

Gold Fields

3.16

6.00

Randgold Resources

78.53

150.00

Freeport McMoran

13.45

25.00

Hecla

5.49

12.50

Franco Nevada

60.85

110.00

Silver Wheaton

20.03

40.00

Royal Gold

66.35

130.00

Sandstorm Gold

4.06

10.00

We have left out two of the best 2016 performers in the silver space - Coeur Mining (NYSE: CDE) which saw a rise of 266% during 2016 and Pan American Silver (NASDAQ: PAAS) which rose 126%. Undoubtedly both these will continue to do well in a strongly rising silver price scenario, but the former was very much a recovery stock in 2016 - and most of the upside is now taken into account - while the latter will likely continue to be held back by the Argentinean state of Chubut's continued opposition to mining which has kept the company's big Navidad silver project on hold with seemingly no likelihood of a change in circumstance in the near future.

So here we are with some predicted figures which leave us very much hostage to fortune. If the Trump boom and dollar strength is sustained through the year then all our predictions could well come down in flames. But we live in a particularly uncertain world at the moment and in a worst case scenario - for the world that is - there are all kinds of potential outcomes for forces already in play which could radically upset the global economic and geopolitical future - some of which we have alluded to above, while others remain unknown. After all who could have predicted the Brexit vote in the UK at the beginning of 2016 - and even more unlikely the Trump Presidential Vote victory. Undoubtedly more black swans lie ahead. We live in a topsy-turvy world.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.