Gold At 5-Month Lows – Why Aren’t Prices Up Following Trump's Win?

By Neils Christensen of Kitco News
Friday November 11, 2016 11:29
(Kitco News) - Donald Trump’s surprise U.S. presidential victory has not been the apocalyptic event markets and analysts were predicting, which has caused a significant selloff in gold.

gold prices are down more than 3% as markets focus on president-elect Donald Trump's proposal fiscal policesContinued selling pressure Friday has pushed gold futures to their lowest point in five months. December gold last traded at $1,227 an ounce, down more than 3% on the day.

Ahead of the election, analysts were predicting that gold could rally to $1,400 an ounce on a Trump victory because of his uncertain policies; however, according to some, a softer tone in rhetoric and expectations of massive infrastructure spending are soothing balms for the market, supporting equity prices and hurting safe-haven assets.

Bill Baruch, senior market analyst at iiTrader, said that Trump’s acceptance speech and comments after meeting President Barack Obama have given him a more statesmanlike image.

“Markets are now banking on the idea that he is going to make rational decisions and support pro-growth policies,” he said. “The idea of stronger growth has come a lot quicker than people were expecting and that is hurting gold.”

Chris Beauchamp, market analyst at IG, agreed that so far Trump’s image has improved but added that volatility will remain high as there is still a lot of uncertainty in markets.

“It’s not surprising markets shifting their perception of Trump. When the bar is set so low, it doesn’t take much to get above it,” he said.

Simona Gambarini, commodities economist at Capital Economics, said the firm sees markets focused on Trump’s massive fiscal plan to rebuild the country’s infrastructure.

“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,” she said.

For now, with gold below key support at $1,250 an ounce, both Baruch and Beauchamp see the path of least resistance as lower for the yellow metal.

“With this selloff we are seeing, I think $1,200 is a natural destination,” said Beauchamp. “The market, at this moment, is telling us that the gold rally is over -- at least until inflation picks up.”

Baruch said that if prices close below $1,250 Friday, then that opens up a test of the next support level at $1,211.50.

“A close below $1,250 and the bears are going to be in control,” he said.

Gambarini said that Capital Economics expects gold’s renewed weakness to be short-lived.

“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. As a result, we think that gold prices could reach $1,450 per ounce by end-2017,” she said.