Predictions for 2017: FTSE 100, gold and oil

investor-checking-iwatch-with-stock-market-and-footsie-prices

January is always a good opportunity for investment experts to offer predictions for the year ahead, speculating on how various asset classes will fare.

The majority of predictions turn out to be as accurate as opinion polls are at forecasting election results, but nevertheless they do offer an insight into the sort of opportunities 2017 may throw out for investors.

FTSE 100

2016 turned out to be a profitable year for investors who had exposure to Britain's leading share index, particularly those who chose the passive route.

The index ended 2016 above the 7100 points mark, before surging to a record high over the past couple of trading sessions. At the time of writing the index was closing in on 7200.

So where will the index end 2017? According to a fund manager poll by the Association of Investment Companies, the consensus view - held by a third of those asked - is that the FTSE 100 will end up somewhere around 7000 to 7500.

A quarter of fund managers predict the index will close between 6500 and 7000, while a pessimistic 8 per cent predict financial Armageddon, tipping the index to close below 4000, which is just shy of 2008's financial crisis levels.

Charles Stanley's chief investment officer Jon Cunliffe has pencilled in a prediction of 7400 for the FTSE 100 before the end of the year, borne out of better global growth and a resilient UK economy.

He adds that the market will also be 'aided by the significant easing in UK financial conditions we have seen in 2016, for example the fall in the value of sterling and the post-referendum interest-rate cut, which should help corporate earnings'.

IG Group predicts the index will push on from here towards 7500, while Citibank has a year-end target of 7600.

GOLD

The yellow metal divides opinion, but the consensus is that 2017 will be a steady rather than a spectacular year.

The gold price rose from $1,095 at the start of 2016 to $1,366 by July, benefiting from heightened levels of uncertainty surrounding events such as the UK's referendum on European Union membership. This led to outstanding gains for funds focused on the metal.

With a calmer year predicted for gold in 2017, the consensus among analysts is that it will make little headway and consistently trade near to or below the $1,200 mark. At present gold is trading at $1,151.

Some analysts offer gloomier outlooks, predicting the gold price will head towards $1,000 an ounce or even end the year in three-figure territory.

Hussein Sayed, chief market strategist at FXTM, a forex trading website, argues that providing the US economy keeps growing there is more chance of other mature economies following suit. This is likely to suppress the gold price, as it is not being bought as a safe haven.

'The gold price can indicate what level populism reaches before it tips over into extremism, and the point at which slow growth tips into recession. What it's telling us now is that, economically speaking, we're not out of the woods yet,' says Sayed.

'The good scenario is gold reaching pre-subprime crisis levels below $1,000 per ounce. The bad scenario is a rise to over $1,300 per ounce, as seen during the Brexit shock. The ugly - at least in terms of uncertainty and instability - is a return to $1,920 and over.'

The expectation of reflation borne out of fiscal policy from president-elect Donald Trump in order to boost economic activity has for the past two months been keeping markets buoyant.

Trump has pledged to cut taxes, while also increasing infrastructure and defence spending. Gold has struggled in this environment, falling from its $1,300 level at the start of November.

This could continue to play out in the months and year to come, but as Tom Becket, of wealth manager Psigma, points out, gold does have previous form in offering some protection against inflation, which is tipped to end the year at around 4 per cent.

'Gold pays no income and is difficult to value, but one thing is for sure: it offers a hedge on financial market chaos and is also an inflation insurance policy,' says Becket. He recommends every investor should have a small weighting, of around 5 per cent, to the yellow metal.

How to inflation-proof your portfolio

OIL PRICE

It has been a bumpy ride for investors with exposure either directly or indirectly to the oil price. Part of the nature of investing in oil is that specular booms and busts come and go.

The consensus, however, is that the latest collapse, which started in June 2014 when oil was trading at over $110 a barrel and saw it fall to below $30 earlier last year, has come to an end.

At the time of writing the oil price was hovering around the $55 mark. Cunliffe predicts that by the time 2017 is out, oil will have risen gently higher.

'We expect to see the oil price reach $60 or higher per barrel by the end of 2017.

'Saudi Arabia's finances are under increasing pressure and we expect the cartel to attempt to make members comply with recently agreed output cuts, in anticipation of the part-privatisation of state-owned oil group Aramco, in 2018,' says Cunliffe.

Paul Mumford, manager of the Cavendish Opportunities fund, is betting on the general direction of the oil price going higher in 2017.

According to Mumford the low oil price is a supply rather than a demand problem, and he makes the point that 'unlike some of the other commodities, oil does get used'.

The manager predicts the right price for oil is currently around $60 a barrel and does not expect a slump back down towards $30.

Those in the bearish camp, however, point out that the longer-term outlook for oil is far from rosy, due to the rise of alternative energy sources, including shale gas.


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