Janet Yellen and the US Federal Reserves rate setting committee, the FOMC, unanimously chose to raise the base rate of interest yesterday for only the second time in a decade. The resultant market action saw the price of gold fall to fresh 10-month lows and has continued to fall further since the European market open this morning.

Looking back, gold has endured a turbulent year of trading.

Beginning 2016 on the coat tails of the wider commodities rally, the projection of four Fed rate hikes from the December 2015 meeting of the FOMC did little to hamper the surge in the precious metal’s price as it rallied from $1060 in January to $1240 by mid-February. The yellow metal then traded in a $1200-$1300 trading range up until the night of the UK’s EU referendum on June 23rd. The surprise ‘leave’ vote saw the price of the metal eventually reach fresh 15-month highs of $1375 during the first 2 weeks of July .

However, as investors became increasingly wary of a December rate hike (and reduced physical Asian trading) a market sell off took in early October sent the price back below $1300. Whilst many had pinned their hopes on a resurgence in price should Donald Trump win the US election, to the surprise of investors the polar opposite happened. A reversal of market sentiment saw investors flock to equities and move away from non-yielding asset classes such as gold, completing a bearish flag pattern around the $1220 mark.

Now in December, the price of gold is sliding once again, quickly approaching the $1100 level that the metal last traded at in January. With that in mind, what are its prospects for  2017?

Once again, investors may be eyeing those Fed projections with caution; however, three hikes in the next 12 months – a number much more open to revision without spooking the market – may carry more impact on safe haven markets than those predicted a year ago did. Furthermore, the expected fiscal stimulus from President-elect Trump provides even more economic basis for the hikes. This does not bode well for the outlook for gold, a metal that has proved highly sensitive to monetary policy since the financial crisis in 2008.

However, factors outside of monetary policy in 2017 could prove to have a greater impact the yellow metal.

2016’s political events provided great traction for gold’s significant rallies, most notably after the UK’s Brexit vote. 2017 could provide even more such events as multiple European elections take place in the coming 12 months.

The first such election takes place in the Netherlands in March, where right wing Geert Wilders continues to lead the polls. This, however, is likely to be overshadowed only a month later on April 23 as the French choose their next president . Marine Le Pen, widely regarded as the biggest right-wing threat to decades of centrist rule in the country (and Europe) is likely to go face to face with Francois Fillon, with her chances of election at an all-time high. Whilst not expected to win, a surprise election for Le Pen could see investors once again flock to the safe haven asset.

Germany also chooses its leader in 2017, as Angela Merkel runs for a fourth term in office in September. Once again, polls are predicting a win for the country’s incumbent centrist leader, but any surprise (likely coming from the right-wing ‘Alternative for Germany’ party) could help the price of gold to rally.

Finally, let’s not forget the calamitous Fed rate hike projections for 2016, which have ultimately resulted in only one of the forecast four hikes being made. Whilst the economic platform going into 2017 may seem to be a little firmer than this time a year ago, there is always a chance that this could change as Donald Trump is inaugurated in January and the Eurozone economy, most notably in Italy, remains hanging in the balance.

As always for the safe haven asset, uncertainty remains its biggest driver.

Henry Croft, Research Analyst, 15 December