A Trump Victory Could Drive Gold Prices Up 10% - ETF Securities

By Kitco News

Thursday September 29, 2016 09:32

(Kitco News) - If you are a gold bug, then you might want to look at voting for Republican presidential nominee Donald Trump, as one firm thinks that the uncertainty surrounding his populist policies would be good for the yellow metal.

In a webcast Tuesday, analysts at EFT Securities said that they remain bullish on gold into mid-2017 as geopolitical uncertainty, a negative interest-rate environment and over-stretched bond and equity markets will be the main factors to drive prices higher.

In particular, James Butterfill, head of research and investment strategy at the investment firm, said that gold could rally 10% over the next 12 months if Trump wins the election in November. On the flip side, he said that gold has the potential to lose up to 6% if the Democratic nominee Hillary Clinton becomes the country’s first female present.

In the presentation, Butterfill said that looking at historical figures, traditionally equity markets sell off and gold prices go up when there is a change in political leadership. He added that gold is seen as a hedge against political uncertainty.

“Markets don’t like change,” he said.

Although the gold bull rally could face some hurdles in a Clinton Administration as she represents the status quo and market stability, the analysts at ETF Securities aren’t ready to give up on the precious metal just yet.

“Even if Trump isn’t elected, there are still a lot of European elections next year that could create some market uncertainty,” said Butterfill.

Butterfill also noted that both candidates have proposed populist plans on infrastructure spending, with Trump proposing to spend $500 billion and Clinton proposing a plan costing $275 billion. He explained that either of these plans will increase the nation’s deficit and increase inflation, which are both positive for gold prices in the long run.

Finally, outside of politics and the U.S. election, the fact remains that U.S. interest rates will remain low, with Butterfill noting that even by the Federal Reserve’s own calculations it will pursue a long-term real negative interest rate policy.

Quoting the Federal Reserve’s latest economic projections released last week following its monetary policy meeting, Butterfill said that the Fed is forecasting an interest rate of 1.1% in 2017 and then 1.9% in 2018, while inflation is expected to rise to 1.8% and 2% respectively.

“A rate hike in December won’t derail the gold rally because interest rates are still going to be really low,” he said.

However, leading up to the December meeting, ETF Securities said there could be a dip in the gold market as expectations weigh on prices, but the rally should resume again in the New Year, with prices expected to rise another 10% to $1,440 by June 2017.