A lot happened in the first half of the year. Among many important events, Trump was nominated as POTUS, the Fed hiked its interest rates twice and announced plan to unwind its massive balance sheet, and a few important elections were held in Europe, with Macron taking over French politics. How did gold perform in that interesting period?

As one can see in the chart below, gold shined in the first half of 2017. The rally started at the end of December 2016, after the FOMC meeting at which interest rates were increased. Since then, the yellow metal gained about 10.6 percent (as of June 26, 2017).

Chart 1: The price of gold in U.S. dollars in 2017 (London P.M. Fix).

Interestingly, practically all gains were concentrated in the first quarter of the year, while gold’s rallyslowed down in the second quarter. It looks a bit like 2016, when gold also soared at the beginning of the year, only to run out of steam a few months later (it would have happened even earlier, but the surprising Brexit vote supported an extension of the rally). Hence, investors should be cautious.

Another intriguing thing is the recent collapse (and the following rebound) of the price of gold expressed in euros and the simultaneous spike (and the following plunge) in the British pound-denominated price, as presented in the chart below. Such behavior seems to reflect an appreciation of the common currency against the British pound due to eased political risks in the Eurozone (Macron’s triumph in the French presidential and parliamentary election) and temporarily increased worries about the British political situation and Brexit after the snap general election.

Chart 2: The price of gold in the U.S. dollar (yellow line), the euro (red line) and the British pound (green line) in 2017 (London P.M. Fix).

What were the main drivers of the gold prices in H1 2017? Well, as usual we should look at the U.S. dollar and the real interest rates. As the chart below shows, the greenback and yields have been sliding this year after an impressive rise at the end of 2016.