Friday November 11, 2016 15:48
(Kitco News) - Last week at this time, most analysts expected that gold could rally to $1,400 an ounce on a surprise Trump victory. And, in the wee hours of Tuesday evening as it became apparent Trump was leading, gold delivered, jumping over 5%.Sign up Kitco Newsletter But…..that was Tuesday.
Since its super rally, the price of gold has more than reversed all of its previous gains and it is now trading at a five-month low. So, what happened to the Brexitesque effect of Trump?
Well, as research firm Capital Economics said this Friday, markets appear to believe that a Trump victory will lead to major infrastructure spending and much more aggressive Fed tightening.
As a result, gold prices have fallen… a lot. While writing this Ed Note, December gold traded down $38.0 an ounce at $1,228.40. Kitco’s Global Trading Director Peter Hug explained, “Gold got slammed as a large commercial order of almost 8 metric tons was dumped on the market.”
But Simona Gambarini, commodities economist for Capital Economics, expects things to turn around for the metal.
“[I]nvestors are ignoring a whole range of policies that have been advocated by Donald Trump during his campaign which could be inflationary or negative for growth and global risk appetite. Hence, we expect the current weakness in gold prices to prove short-lived,” she said.
Gambarini added that the turnaround point appears to have been Trump’s relatively conciliatory acceptance speech, on Wednesday morning. “That encouraged hopes that he will moderate his more extreme positions when actually in office. But most importantly, the markets have chosen to focus on his promises to deliver a large fiscal stimulus, including a substantial increase in infrastructure spending. This has boosted demand for riskier assets, notably industrial metals and equities, while weighing on gold prices as risk appetite returned to the markets and expectations for further tightening by the Fed were brought forward.”
Finally, Gambarini added that the prospect of a big deficit-funded fiscal stimulus is likely to push inflation well above the Fed’s 2% target, meaning that even if the Fed raises rates more aggressively, real interest rates should remain low.
On this November 11, Kitco News wants to give thanks and honor all the men and women who served and are serving to protect our daily freedoms. We salute our Vets and we should remember to be thankful not just today, but every day.
And for music lovers out there, we lost a legend this week and would like to thank Leonard Cohen for his tower of song, inspiration and words that always seemed to come at the most perfect moments.
As we head into this weekend with a lot of change thrown at us, let’s take a moment to breathe and regroup.