Donald Trump's presidential win shook the markets like an Etch-A-Sketch. Investor optimism rallied stocks and gold was crushed. We're days away from the President-Elect setting up shop in the White House, backed by an army of businessmen with a smattering of generals thrown in for good measure. There's no doubt that the new adminstration intends to shake things up and right the ship.
While it's great to see the optimism associated with proposed changes, it is possible that the market has gotten ahead of itself in projecting future outcomes. In the best case scenario - investor optimism is rewarded. Tax cuts and stimulus are implemented, interest rates rise very slowly, and the S&P500 goes as high as 2,700. In the worst case scenario, policymakers fail to deliver and the market drops as low as 1,600. An equity strategist from Merrill Lynch told USA Today last week that if policy makers, "cannot deliver a pick-up in growth...markets would likely begin to price in an imminent recession."
Considering these two extremes, let's mull over the following: what will happen to the precious metals markets in 2017? Well, despite the year ending on a low for gold, it's important to bear in mind that 2016 was a historically strong year for metals investors. Gold bullion gained $91 per ounce or 8.6% in 2016 for its first annual gain in four years. There is every reason for that trend to continue after this dip between presidents. The trend will continue because none of the treats to national security or the dollar have been eliminated. From terrorist attacks, to cyberwarfare, to immigrants flooding into economically-unstable nations, things are still dire. So what big events are coming up in 2017 that will determine the future of your assets? Here are the three whoppers to keep an eye on in 2017:
1. American Energy Independence
Energy may be the focal point for Trump's first 100 days. Trump intends to take measures to ramp up American oil and gas production and stop the importing of energy. If he is successful, the tax revenues for exporting energy could pivot our balance sheet in a meaningful manner. The energy industry alone could replenish our job force and relax reliance on the countries that provide us with oil, coal and natural gas.
2. The Bubble Burst of 2017
If you still doubt that we are in the midst of a massive bubble - stop right there. Take a deep breath. Reach for a copy of Harry Dent's book, "The Sale of a Lifetime: How the Great Bubble Burst of 2017 Can Make You Rich." We are past due at this point, and how high stocks are climbing should be setting off your alarm bells.
Today's bubble is nearly identical to the dot-com bubble of the late 90s, except this one has lasted 6 and 1/2 years instaed of 5. This means it's even more stretched and it's going to burst even harder.
"We want to think that things go up linearly and incrementally and just get better and better," says Dent. "That's why the better things get, the better we think they're going to get."
That's not really the case, Dent explains, because markets don't move linearly, they move in cycles. A smart investor understands that the longer a market goes up and the higher it gets, the more downside and risk there is.
"These are not black swans," Dent says about the bubbles around the American, Chinese and European economies. "They build exponentially over a number of years and once they peak stocks will correct twice as fast as the bubble burst." People who wait for the bubble to burst to take their money out of stocks have usually waited too long.
3. The Break-Up of the EU
It's not a definite that the Euro is done for, but it's a definite possibiltiy for 2017. The socialist policies of Europe are crumbling and a populist wave has swept the continent. Nearly a dozen elections are taking place around the globe this year, and the world is waiting to see if the populist contenders will rise to power. These elections include Italy, Germany, the Netherlands, and France. It's likely that the populist parties will vote to leave the EU, and a wave of nation's voting to leave could leave the euro abandoned and bust. In the even that this happens, the euro will lose value and the dollar will strengthen - a bad combination for gold.
These three dominos will influence the price of gold, depending on their outcomes, but what's certain now has always been certain: gold is a store of value. The actual value of gold will continually move higher over time because its purpose is to protect purchasing power. This is a unique time for gold becaue the total value of corporate debt and equity relative to gross value added is just as high today as it was during the peak of the dot-com bubble. So we're at a time when real assets have never been cheaper relative to these extreme valuations in financial assets.
Additional disclosure: CAPITAL GOLD GROUP, INC. IS NOT A BROKER DEALER OR A FINANCIAL SERVICES PROVIDER AND DOES NOT PROVIDE FINANCIAL PLANNING OR FINANCIAL ADVICE. CAPITAL GOLD GROUP, INC. IS A PRECIOUS METALS DEALER AND IS ONLY IN THE BUSINESS OF SELLING PHYSICAL PRECIOUS METALS.