Gold at the Crossroads

gold

Ukrainian Credit Union Limited.

Prior to the presidential election in the U.S., a Donald Trump victory was seen as good for the price of gold, due to the expected flight of capital into gold as a perceived safe haven on the back of the anticipated high budget deficits due to infrastructure and military spending, announced by Trump. This sentiment switched in completely the opposite direction, once Donald Trump won the election. His presidency started to be taken quite favorably by the market in terms of the expected economic growth, and was reflected by a 10% run up in US stocks by the end of January – the Dow Jones Industrial Average index posted its all-time high on January 26 at 20,100 points.

To the contrary, from election-day (November 8th) up until Christmas the price of gold dropped by around 13%. Since then, gold posted an 8% rally and moved above the 1,200/ounce level. This rise happened at the same time as US stock markets moderated in their rally. It appears that as Trump has now taken office and is passing Presidential decrees, the market is looking at a Trump presidency more soberly. In the recent days, the price of gold rose after Donald Trump imposed the immigration ban on certain Muslim countries.

In the longer run, the destiny of the gold prices rising beyond the $1,370/ounce level, posted in 2016, may depend on markets getting more nervous about taking risks, and so a flight to safety from Trump or economic problems in other global regions (China or Europe) may bode better for gold prices.