Gold feeds off Trump’s rage

CityPress - - Business -

The Don­ald Trump era is mark­ing a new age for gold as an in­vestor haven. While the pre­cious metal has al­ways been hoarded in times of trou­ble, a col­lec­tion of po­lit­i­cal and eco­nomic sur­prises in 2016 sparked a surge in buy­ing that sent bul­lion to the first an­nual gain in four years.

Prices may rally 12% in 2017, ac­cord­ing to a Bloomberg sur­vey of 26 an­a­lysts. Fu­elling the bullish out­look is the risk of chaos on mul­ti­ple fronts: a pos­si­ble trade war from Amer­ica’s fray­ing re­la­tion­ship with China, the al­leged Rus­sian hack of US po­lit­i­cal par­ties, the UK’s com­pli­cated exit from the EU, and the elec­tions ex­pected in France, Ger­many and the Nether­lands that may see a rise of na­tion­al­ist groups.

And then there are Trump’s fre­quent Twit­ter posts, in which the US pres­i­dent elect has feuded with ri­vals and made dec­la­ra­tions that have unset­tled al­lies even be­fore he has taken of­fice on Jan­uary 20.

“A hun­dred and forty char­ac­ters of unfiltered Trump is likely to cre­ate ten­sions with Amer­ica’s largest trad­ing part­ners,” Mark O’Byrne, a di­rec­tor at gold bro­ker GoldCore in Dublin, Ire­land, said via email. “Mar­kets that are al­ready shaken by the fallout from Brexit, the com­ing elec­tions in Europe and in­deed the in­creas­ing spec­tre of cy­ber war­fare could again see a safe­haven bid.”

Gold for im­me­di­ate de­liv­ery is up 9.2% this year to $1 158.73 an ounce, halt­ing a three-year slide.

More than two-thirds of the an­a­lysts and traders sur­veyed from Sin­ga­pore to New York are bullish for 2017.

The me­dian year-end fore­cast was $1 300, with the year’s peak seen at $1 350. Two, in­clud­ing O’Byrne, said the metal may reach $1 600.

De­mand for bul­lion would get a boost if elec­tions in Europe saw gains by anti­estab­lish­ment par­ties, ac­cord­ing to Com­merzbank an­a­lysts led by Eu­gen Wein­berg.

PRO­TEC­TION­IST POLI­CIES

In­creased pro­tec­tion­ist poli­cies and the po­ten­tial for a trade war be­tween Trump’s ad­min­is­tra­tion and China might also help push gold higher, they said.

In a grow­ing num­ber of coun­tries, “there are na­tion­al­is­tic ten­den­cies, more iso­la­tion­ist ten­den­cies”, said Peter Mar­rone, the CEO of Toronto-based Ya­mana Gold, which owns mines in Canada and South Amer­ica. “That will cre­ate geopo­lit­i­cal and so­cioe­co­nomic volatil­ity, per­haps in­sta­bil­ity, cer­tainly risk.”

That doesn’t mean there aren’t rea­sons to be bear­ish. Af­ter start­ing 2016 with the big­gest first-half rally in four decades, prices fell from their peak in July and in­vestors have cut back on bul­lion hold­ings. That was mostly be­cause an im­prov­ing US econ­omy and higher in­ter­est rates made other as­sets more at­trac­tive, in­clud­ing eq­ui­ties.

Four of the an­a­lysts in the Bloomberg sur­vey pre­dicted bul­lion would drop be­low $1 000 in 2017, par­tic­u­larly if the Fed­eral Re­serve raises in­ter­est rates three times next year and Trump makes good on his pledge to boost in­fras­truc­ture spend­ing to spur eco­nomic growth.

Hold­ings of the metal in ex­change-traded funds (ETFs) – which had reached a three­year high in Oc­to­ber – dropped for 33 con­sec­u­tive days af­ter the US elec­tion on Novem­ber 8, the long­est slide since 2004, data com­piled by Bloomberg show.

Gold­man Sachs Group an­a­lysts said in a note on Novem­ber 21 that the bulk of new in­vest­ments in gold-backed ETFs were los­ing money and that fur­ther sell­ing in ETFs could ex­ac­er­bate price de­clines.

Cit­i­group also cited down­side risks from a po­ten­tial sell­off in gold ETFs, while Bank of Amer­ica Mer­rill Lynch said the metal was in the dol­drums as the eco­nomic pol­icy out­lined by Trump pushes rates higher.

Sin­ga­pore-based OCBC Bank’s Barn­abas Gan, an economist whose pre­dic­tion was the most ac­cu­rate among gold fore­cast­ers tracked by Bloomberg in the third quar­ter, sees the metal fall­ing to $1 100 by the end of 2017.

WILD ONE

Still, signs of op­ti­mism re­main. A poll by Bloomberg In­tel­li­gence on Novem­ber 10 showed 42% of re­spon­dents predict that gold will be the best-per­form­ing metal in 2017.

Ron­ald Stoe­ferle, man­ag­ing part­ner at as­set man­ager In­cre­men­tum and the most ac­cu­rate among the pre­cious met­als fore­cast­ers tracked by Bloomberg last quar­ter, said the metal would rally to $1 422 be­cause the Fed may turn out to be more dovish than ex­pected, which would mean an ac­cel­er­a­tion of in­fla­tion that boosts the ap­peal of gold.

“Gold is ma­nia-prone, both on the up­side and the down­side,” said Christo­pher Cru­den, CEO of In­sch Cap­i­tal Man­age­ment in Lugano, Switzer­land. His gold fund is up 39% this year.

“It’s ir­ra­tional, but that could be used to your ad­van­tage,” Cru­den said. “If you are on the right side of the ir­ra­tional­ity, you can do well.” – Fin24

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