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What is the ultimate driver of Gold?

iconJan 23, 2017 15:23
Gold could attract some safe-haven interest in the early stages of a Donald Trump U.S. presidency due to uncertainty about his policies, said analysts.

UNITED STATES January 23 2017 11:29 AM

NEW YORK (Scrap Register): Gold could attract some safe-haven interest in the early stages of a Donald Trump U.S. presidency due to uncertainty about his policies, said analysts.

Market participants are awaiting Trump’s inauguration speech later Friday. “No concrete information about his future policy can probably be expected, however,” said Commerzbank. 

“Once Trump takes up his new office, it will be actions that count – he will not get far with words alone. Market participants are likely to feel a latent sense of uncertainty because so little is known about his policies; gold should profit from this as a safe haven,” analysts at Commerzbank added. 

HSBC comments that the incoming U.S. administration is more of an unknown compared to others in recent decades. 

“Until the new administration’s policies are clear, there is a level of market anxiety that may benefit gold,” HSBC said. “That said, we do not expect these concerns to push gold higher; however, we do think they are more likely to limit potential losses.”

“Gold could get a short-term bounce from uncertainty about a new Donald Trump administration, but ultimately the metal’s direction likely will be influenced by future monetary policy of the Federal Reserve,” said Bob Haberkorn, senior commodities broker with RJO Futures.

“There is a big unknown,” he says about specific policy changes after the change of power in the U.S. “I think we have more upside to go.” However, that boost could be limited while the market continues to digest how aggressive the Fed might be in upping interest rates, he continues. 

“The theme is still the Fed,” Haberkorn said. “What’s the Fed going to do?” Higher U.S. interest rates tend to hurt gold, and vice-versa, since tighter monetary policy underpins the U.S. dollar and increases the so-called “opportunity cost” – or lost interest earnings – of holding a non-yielding asset like a precious metal, Haberkorn added.

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