Gold advanced to a two-month high on Monday as the metal finds support from safe haven buyers amid increasing global economic and geopolitical uncertainty.
In brisk trade of more than 23m ounces gold for delivery in February, the most active contract on the Comex market in New York, hit a high of $1,219.40 in afternoon dealings, up over 1% from Friday’s close. It was the highest intra-day level for gold since November 22.
Gold is now up just shy of 6% in January, but has taken a beating since Trump’s victory trading some $120 an ounce below its high on election night November 8.
Gold bears are betting that a Trump administration will lead to strong US economic expansion, higher interest rates and a stronger dollar. Higher interest rates (after adjusting for inflation) boosts the value of the dollar and makes gold less attractive as an investment because the metal is not yield-producing and investors have to rely on price appreciation for returns.
But on Monday, that narrative began to unwind as President Trump’s swift action on US trade deals began to hurt the dollar and worries about the broader geo-political impact of a Trump administration, the fallout from Britain’s exit from the EU and upcoming elections in Germany and France mount.
In a research report Cantor Fitzgerald analyst Rob Chang says the 45th US president “will add an unprecedented degree of uncertainty to global markets”:
“Trump’s incoming administration is among the least experienced in public service of any in history and this will lead to a steep learning curve for several departments. While it is generally expected that the Republican-controlled Senate and House of Representatives will be supportive of Trump’s policies, collaboration is far from certain as there has been an inordinate amount of pushback from senior members of the Republican Party on various fronts.
“In addition, the unconventional and often erratic behaviour of Trump may also be a constant wildcard. We point to his interesting and frequent use of twitter as a prime example of this as a single tweet can influence markets. These issues point to a great degree of political and policy uncertainty for the U.S., which will make the safe haven feature of gold very attractive.”
A report by Bloomberg showed that during the seven presidential inauguration years since the end of the gold standard, the price of gold fell during the year that a new president was sworn in only on one occasion. That was in 1981, when Ronald Reagan took office. The 12-month gold price performance following a newly elected US president has averaged +15%.