Cards stacked against gold price
The recovery in the gold price would probably not develop into another postTrump spike as the cards remained stacked against the metal, analysts said. Chief among those was the stronger dollar.
The recovery in the gold price would probably not develop into another post-Trump spike as the cards remained stacked against the yellow metal, analysts said.
Chief among those were the stronger dollar.
The gold price recovered to more than $1,200 an ounce last week, after losing ground to $1,130 following Donald Trump’s election on November 8.
On Monday, the gold price held strongly at $1,205 an ounce, despite the dollar firming to $1,0579 to the euro at one point.
The dollar has been strengthening since November, but Trump’s disappointing press conference last week may have presented new opportunities for the precious metal after the dollar weakened from $1,04 to the euro to $1,06. It has also failed to strengthen to more than $1 to the euro.
A number of factors are driving the gold price, said Nedbank Corporate and Investment Banking research head Mohammed Nalla.
The medium-term outlook for the gold price is tied to central bank actions, particularly that of the US Federal Reserve. An interest-rate increase may strengthen the dollar, which may hamper demand for gold.
But the gold price would also be affected by continuing geopolitical tension, and any resumption in demand from China and India, Nalla said.
The gold price spiked to $1,290 an ounce on November 9 after Trump’s election. But soon afterwards it slumped again as Trump stuck to his pro-growth and fiscal stimulatory policies.
Analysts do not expect a repeat of the spike soon, with the present recovery seen as a V-shaped correction. Gold usually follows related commodity prices, such as platinum and iron ore, which have been holding up despite a firmer dollar.
Analysts at investment house SEI have found the resilience of commodity prices surprising. “We wonder how long this will be the case if the dollar maintained its upward trajectory,” they said.
Gold may receive some physical buying support in January from Chinese investors ahead of the Chinese Lunar New Year. Gold, the Japanese yen and US treasuries have a safe-haven function when the dollar pulls back. The dollar is expected to strengthen further should the Fed increase interest rates, but any missteps by Trump, or a failure to announce stimulatory policies mentioned in his election campaign, was likely to provide a boost for gold over the short term.
Technical analysis shows that further consolidation of the gold price at about $1,200 an ounce could provide support to $1,220. Weakness in the gold price could see it retrace to levels approaching $1,170.