A new age for gold as an investor safe haven is being made by the Donald J. Trump era.
A bevy of political and economic surprises in 2016 sparked a surge in buying that sent bullion to the first annual gain in four years eve while the precious metal has always been hoarded in times of trouble. According to a Bloomberg survey of 26 analysts, prices may rally 12 percent in 2017.
The elections slated in France, Germany and the Netherlands that may see a rise of nationalist groups, the U.K.’s complicated exit from the European Union, the alleged Russian hack of U.S. political parties and a possible trade war from America’s fraying relationship with China are the chaos on multiple issues that are fueling the bullish outlook. Added to that are Trump’s frequent Twitter posts, in which the U.S. president-elect feuded with rivals and made declarations that unsettled allies even before he takes office Jan. 20.
“140 characters of unfiltered Trump is likely to create tensions with America’s largest trading partners,” Mark O’Byrne, a director at broker GoldCore Ltd. in Dublin, said by e-mail. “Markets that are already shaken by the fallout from Brexit, the coming elections in Europe and indeed the increasing specter of cyber warfare could again see a safe-haven bid.”
Halting a three-year slide, gold for immediate delivery is up 9.5 percent this year to about $1,162 an ounce. They were bullish for 2017, say more than two thirds of the analysts and traders surveyed from Singapore to New York. With the year’s peak seen at $1,350, the median year-end forecast was $1,300. Two, including O’Byrne, said the metal may reach $1,600.
According to Commerzbank AG analysts led by Eugen Weinberg, if elections in Europe see gains by anti-establishment parties, demand for bullion would get a boost. They said that gold may be pushed higher helped by the potential for a trade war between Trump’s administration and China and increased protectionist policies.
Peter Marrone, the chief executive officer of Toronto-based Yamana Gold Inc., which owns mines in Canada and South America said that in a growing number of countries, “there are nationalistic tendencies, more isolationist tendencies.” “That will create geopolitical and socio-economic volatility, perhaps instability, certainly risk.”
However there are also reasons that gold can be bearish. Prices fell from their peak in July and investors have cut back on bullion holdings after starting 2016 with the biggest first-half rally in four decades. This was mostly because other assets were made more attractive, including equities, by an improving U.S. economy and higher interest rates.
If Trump makes good on his pledge to boost infrastructure spending to spur economic growth and the Federal Reserve raises interest rates three times next year, bullion would drop below $1,000 in 2017, four of the analysts in the Bloomberg survey predicted. According to data compiled by Bloomberg, noting the longest slide since 2004, holdings of the metal in exchange-traded funds — which had reached a three-year high in October — have dropped for 33 straight days since the U.S. election on Nov. 8.
The bulk of new investments in gold-backed ETFs are losing money and that further selling in ETFs could exacerbate price declines, Goldman Sachs Group Inc. analysts said in a note Nov. 21. While Bank of America Merrill Lynch said the metal is in the doldrums as the economic policy outlined by Trump push rates higher, Citigroup Inc. also cited downside risks from a potential selloff in gold ETFs.
(Adapted from Bloomberg)