By Kitco News
Tuesday November 15, 2016 11:42
(Kitco News) - Gold prices have been hit fairly hard following Donald Trump’s surprise election victory as markets focus on expectations of increased fiscal-stimulus measures, and one analyst said that if this turns out to be accurate, then gold could remain weak for the next two years.
Gold's selling pressure saw some relief Tuesday as December futures last traded at $1,224.90 an ounce, up 0.29% on the day.
Although Trump’s economic policies are still relatively unknown, he has recently said that he plans to spend up to $1 trillion over the next 10 years to rebuild the nation’s infrastructure.
"We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals," Trump said in his election-night acceptance speech. "We're going to rebuild our infrastructure, which will become, by the way, second to none, and we will put millions of our people to work as we rebuild it."
If this new spending plan becomes a reality, Bernard Dahdah, precious metals analyst at Natixis, said in a report Tuesday that gold could suffer for at least two years. Dahdah was also named gold forecaster of the year for 2015 by the London Bullion Market Association. During this period, he said, industrial metals should outperform precious metals.
“We estimate that it will take around a year from when the new president enters the house in January 2017 until he is able to start applying his infrastructure plan. Once it starts being implemented, we expect that the increase in infrastructure spending will be positive for the economy for at least one year,” he said. “Therefore, we expect that gold prices will suffer from downward pressure in the next two years.”
However, following the two-year period, Dahdah said that if Trump’s increased spending doesn’t improve the U.S. economy, then gold cold once again see renewed investor interest.
“Post this two-year period, we could potentially see this aggressive fiscal policy starting to fail and this could have a massively negative effect on the U.S. economy. Gold could then hugely benefit on the back of a lack of confidence in the U.S. economy and a much weaker currency.”
While Dahdah sees potential headwinds for gold during the next two years, he added that the market will still see some volatility and spikes in safe-haven demand, especially if other Trump policies come to fruition.
“Gold prices could momentarily rise if NATO is perceived as being ditched by Trump, or if the Iran deal and the NAFTA agreements are scrapped,” he said.