Citi: Bullion Now May Be At Risk If Yields Keep Rising After Trump Win

Friday November 11, 2016 08:33
The price risk in bullion now may be skewed to the downside into 2017 if U.S. yields continue to back up and the U.S. dollar remains bid under a Trump administration, says Citi Research. The bank concedes that gold’s price decline since the election has gone against what most observers expected in the event of a Trump win. “Perhaps the conciliatory speeches from Mr. Trump, Mrs. Clinton and Mr. Obama played a part in calming investor nerves, but the immediate reaction was not a Brexit-style event for gold either from a spot price or vol perspective for more than a few hours,” Citi says. “The bullish short-term bullion view that Citi outlined on a Trump victory will probably not materialize, especially on a smooth transition of power and given the current strong U.S. dollar trend. The medium-term gold outlook might even be a bit negative for prices on a Trump presidency.” Treasury yields have risen since the Trump win, with the 10-year rising to 2.117% from 1.828% the day before the election. “The move in rates following the Trump win -- on the potential for fiscal expansion, inflation and convexity selling -- is perhaps what is now most relevant for gold going forward, particularly if headline risks are now fully alleviated and to the extent Trump policy outlooks continue to be received as risk friendly and U.S. dollar positive.” Comex December gold initially surged to a six-week high of $1,338.30 an ounce in the hours immediately after the election, but since pulled back to $1,260.90 as of 8:15 a.m. EST Friday.

By Allen Sykora of Kitco News; asykora@kitco.com