Gold: one of the biggest losers from the victory of Donald Trump
Gold has been one of the biggest losers from the victory of Donald Trump in the US Presidential Election, but it is only a matter of time until it sees a rebound, according to ETF Securities.
Gold is currently trading at $1,196 per ounce, having dropped to a near-ten month low of $1,176 last week. The price of the precious metal fell despite predictions a Trump win could push investors into safe-haven assets, as markets reacted positively to his expected policies.
In the run-up to the US election, ETF Securities was predicting a 10% jump in the price of gold if Trump became President, but this spike did not materialise. Gold ETPs saw significant outflows, with the firm reporting $83m had left its gold products in the week to 18 November, the largest weekly outflow this year.
Gold could reach $1,440 next year
However, James Butterfill, head of research and investment strategy at ETF Securities, said the price of the precious metal will soar again as investors turn their attention to the risks of the upcoming European elections.
The French election is coming up on 23 April 2017, while Germany will also see a Federal election that year. Meanwhile, Italy is preparing for a referendum on constitutional reforms on 4 December.
Butterfill believes gold could reach $1,440 per ounce by mid-June next year as a result of this uncertainty, saying: “Aside from the risk from a Trump Presidency, 70% of Europe by GDP has elections in 2017 just when populists are rising rapidly in the polls. Political risks remain high.”
He conceded “it would be prudent to advise clients to expect further weakness in the gold price” in the expectation of a rate hike by the Federal Reserve in mid-December, which would strengthen the US dollar and cause gold to drop further, but said this will “represent a great buying opportunity, particularly as the long-term risks of inflation rise”.
He also warned on the market euphoria surrounding Trump’s win, pointing out that many reforms proposed by Trump are likely to be difficult to enact in reality, and it is risky for investors to assume he will be able to do everything he promises.
“Once Trump is in the White House it will become evident that he will struggle to enact many of his proposed reforms. Of particular note will be the difficulty in approving a higher debt ceiling to budget for his tax cuts and infrastructure spending,” he said.
Reverse relationship between US dollar and gold
The head of research expects a correction in the US dollar late this year or early next year, after the market digests the news of the interest rate hike in the US, given the rapid rate of its strengthening.
Against sterling, the US dollar has strengthened by 18% year-to-date, trading at $1.2498, while over the past 6 months it is up 6% against the euro at $1.0661. But if the greenback begins to fall again, gold will strengthen, as there is a reverse relationship between the two assets.