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(The opinions expressed here are those of the author, a columnist for Reuters.)
By Clyde Russell
LAUNCESTON, Australia, Dec 19 (Reuters) - It was supposed to be a good year for gold, given all the uncertainty and surprises over the U.S. presidential election, the British vote to leave the European Union and general concern about the health of the global economy.
But things didn't quite pan out the way gold bulls would have hoped, and now they face a new year where the price of the precious metal is likely to be hostage to developments that are inherently unpredictable.
The two main risks for the gold outlook for 2017 are what actually happens in the presidency of Donald Trump and how the demonetisation of Indian Prime Minister Narendra Modi plays out in the world's second-largest consumer of the precious metal.
Gold certainly enjoyed a strong first half in 2016, with the spot price gaining almost 30 percent between the end of last year and the intraday high this year of $1,374.91 an ounce on July 6.
However, since then it has slid 17.5 percent to the close on Dec. 16 of $1,133.99 an ounce, as investor sentiment swung from gloomy to optimistic that the United States will help lead global growth and reflation.
Much of the newly-found optimism is based on the view that Trump will be able to kickstart the U.S. economy through his plans to spend up to a $1 trillion on infrastructure and other projects.
Equity markets and industrial metals have enjoyed strong gains since Trump's surprise victory over Democrat Hillary Clinton in the Nov. 8 vote, with the U.S. dollar also rising as investors expect the Federal Reserve to continue raising interest rates after this month's hike.
The market's expectation for Trump's presidency is bearish for gold as a rising U.S. dollar and interest rates, coupled with strong equity markets, leaves the yellow metal out in the cold.
But the markets have so far priced in all the positive outcomes from Trump, while ignoring the potential negatives.
While Trump has clearly stated he wants to boost the U.S. economy, he has also clearly stated he intends to take the U.S. out of global and regional trade agreements, and impose tariffs on goods on various countries, including China.
He also wants to restrict immigration into the United States and build a wall along the border with Mexico.
The view investors have taken so far is that Trump will do all the good things for the economy and none of the bad.
This seems unduly optimistic and gives gold the opportunity for gains in 2017 if Trump disappoints the expectations now being built up around his presidency.
While it would be economically stupid to spark a trade war with China, it's not beyond the realms of possibility that Trump will do it anyway.
It's also far easier for a U.S. president to impose trade barriers using executive powers than it is for him to pass tax cuts and raise money to spend on projects, as these decisions have to go through Congress.
Beyond Trump, gold will also depend on what happens in China and India, the two major consuming nations.
China's gold demand has dropped this year, with third quarter consumer demand at 182.5 tonnes, down 22 percent from the same period in 2015, while India's 194.8 tonnes is 28 percent lower.
China's gold demand should be at least steady in 2017, with some upside as consumers buy into rising prices in local currency terms.
But India's gold demand will be far from certain in the aftermath of the government's decision to withdraw 500 and 1,000 rupee ($7.37 to $14.75) notes, which represent about 86 percent of all notes by value.
Indians mainly use cash to transact and the withdrawal of the two largest denomination notes has led to shortages of money as people struggle to pay for goods and services.
Gold will be affected as well, given many Indian families use cash to buy gold, especially during the wedding season.
It's likely that gold demand will be crimped by the demonetisation policy, but the key question is for how long.
It's possible that as cash shortages ease, consumer gold demand will bounce back.
But it's also possible that the government's aim of cracking down on the informal economy will hurt gold demand as consumers are left with little choice but to put money into banks rather than use cash to buy gold.
It's estimated that as much as one-third of India's annual demand is paid for by "black money," funds held in secret by people to avoid paying tax.
The impact of India's demonetisation on gold demand is far from certain, and similar to Trump's presidency, it's difficult to make definitive predictions.
Editing by Richard Pullin