On Tuesday gold made a break for $1,300 an ounce with December futures trading on the Comex market in New York exchanging hands at $1,290.00 an ounce in early morning trade, up 1.3% and the highest since October 4.
The immediate cause for the jump was weakness in the US dollar with the index against a basket of currencies from the country’s major trading partners sliding to a two-week low of just under 98.
Conventional wisdom is that the gold price and the dollar move in opposite directions. The dollar’s all-time peak of 164.7 was reached in February 1985. That coincided with a bottom in the price of gold of $284.25 an ounce. In August and September when gold was peaking above $1,900, the dollar index dipped below 75.
Another reason behind today’s jump in gold (and weakness in the greenback) is uncertainty about the outcome of the US election.
In a study released last week the GFMS team at Thomson Reuters concluded that while a Clinton win would not have a dramatic impact on the gold price, a Trump triumph will put pressure on financial markets and the dollar, prompting investors to seek the relative safety of gold:
Trump’s views on foreign policy and the uncertainty about the effects of his policies on the U.S. economy are likely to create a lot of short-term fluctuations in the dollar and global financial markets.
Increased volatility and the potential for geopolitical tensions associated with a Trump victory are likely to fuel safe-haven buying, putting a further drag on the dollar.
We therefore believe that the greenback would come under significant pressure were he to win, particularly in the immediate aftermath of the elections. That said, should his policies prove successful in the longer term, accompanied by a healthy growth path, the dollar should stabilize.
According to GFMS a Trump victory could spark a rally to $1,400 and maybe even $1,500 in our view while a win for Clinton would likely see prices ebb lower.
Year to date gold is managing gains of nearly 22% or $230 an ounce, one of its best annual performances since 1980.