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Gold was on the wrong end of the Trump-induced market rally at the end of 2016,registering “its second-worst quarter in 18 years.” The greenback surged on an improving U.S. economy and hopes of fiscal reflation in Trump administration which worked as a miracle for stocks.

Increased inflationary expectations and a Fed rate hike gave a solid boost to U.S. Treasury bond yields which in turn punished non-interest bearing assets like gold. The metal lost almost 13% in Q4 (read: Top ETF Stories of the Fourth Quarter).

However, New Year chills brought in some good news for gold prices as the metal saw a sudden recovery and crossed the psychological $1,200 an ounce barrier on January 16. The reasons behind this unexpected turnaround were the lack of clarity about the fiscal policy boost in Trump’s first press conference and concerns over the prospect of a protectionist government (read: Trump's First Press Conference Puts These ETFs in Focus).

The market soon went volatile with the S&P 500-based (SPY - Free Report) losing 0.1% and Dow Jones Industrial Average-based DIA shedding about 0.3% in the last five trading sessions (as of January 13, 2017). As soon as market uncertainty started rearing its head and the dollar fell, gold prices advanced. Gold bullion ETF SPDR Gold Shares (GLD - Free Report) added about 2.2% in the last five trading sessions as part of a safe-haven rally.

Can the Jump in Gold Prices Continue?

Investors should note that the US president-elect has been critical of automakers and intelligence agencies. So, Mexican trade seems to have faced maximum pressure because of Trump’s border tax. Recently,Donald Trump gave the same caution to German auto makers that he would levy a border tax of 35% on vehicles or components imported to the U.S. market.

Apart from Trump, factors like considerably high household debt in a rising rate environment and the prospect of a hard Brexit can trigger significant volatility in the coming days, as per analysts. U.K. prime minister Theresa May is preparing for the UK’s exit from the European single market and the world got busy in how smooth this departure would be and how harsh its impact would on global economies (read: More Pain or Relief Ahead for Gold ETFs in 2017?).

If this was not enough, U.S. stocks are overvalued after a stupendous run post Trump win. So, a correction may hit the market as soon as investors get some bearish hints. As per a source, the S&P 500 is overvalued by 73% going by the Case-Schiller cyclically adjusted price-to-earnings (CAPE/PE) ratio. So, if stocks tank, gold prices could brighten thanks to a risk-off trade sentiment (read: Time to Prepare for 'Trump Slump' with These ETFs?).

Also, the inflationary outlook is finally looking up in developed economies, albeit slowly. Prolonged easy money policies by global central banks, the OPEC move intended to shore up oil prices and the Trump effect made it happen. If energy prices continue to recover and translate into inflation, it may act as a catalyst for gold, as the metal is often viewed as a hedge against inflation.

And the last but not the least, geo-political risks including terrorism and the new U.S. government’s relation with other global superpowers will have a lot to do with deciding the fate of gold prices 2017. If any of the above-said factors turns sour, a safer rally may take gold to highs.

Bottom Line

Overall, the metal will likely remain volatile swinging between gains and losses. Excessive crashes that many feared in late 2016 seems less likely as Trump is yet to deliver a proper fiscal policy layout and uncertainty flickers on. Plus, there will a number of elections in Europe this year, giving another reason for a potential rise in volatility (read: Volatility ETFs in Focus as Trump Rally Fizzles Out).

Till then, investors eyeing gold investing can follow the trend of global economic events. There are plenty gold bullion ETFs, namely GLD, iShares Gold Trust ETF (IAU - Free Report) , ETFS Physical Swiss Gold Shares ETF (SGOL - Free Report) , PowerShares DB Gold Fund (DGL - Free Report) and Van Eck Merk Gold Trust ETF (OUNZ - Free Report) , which can fill investors’ pockets with profits in the metal’s better days.

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