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Safe-haven gold outperforms as Trump’s election spooks financial, equity markets

JOHANNESBURG ( – While gold outperformed as a safe haven after Donald Trump’s worrying election as the forty-fifth president of the US, financial and equity markets were frightened into falls along with emerging market currencies, including the rand.

The World Gold Council (WGC) reported on Wednesday that gold outdid all other asset classes and currencies including other traditional safe havens like the Swiss franc.

The GFMS team at Thomson Reuters reported gold initially adding $45 at its peak to reach $1 337/oz, a gain of 4.3% on the previous day. 

BMI Research said the Trump victory would buoy gold prices in the coming days and Trump’s victory speech announcement that he would invest in infrastructure improved the outlook for commodity prices in general.

The Trump-boosted gold price rise represented a three-month high in Chinese renminbi currency and seven-week highs in US dollars, Australian dollars and Russian roubles, four countries that in 2015 accounted for 38% of world mine production, the WGC noted in a release to Creamer Media’s Mining Weekly Online.

South Africa’s Parliamentary International Relations and Cooperation Portfolio Committee commended the gracious way in which losing contender Hillary Clinton conceded defeat and urged president-elect Trump to increase trade relations with Africa - a comment that draws critical attention to the inward-looking approach that Trump emphasised during his election campaign.

The committee added that Trump, who takes over from President Barack Obama in January, has an opportunity to demonstrate to the world that he is for global development and prosperity rather than solely American development and prosperity alone.

Herbert Smith Freehills South Africa partner Rudolph du Plessis commented that the impact of Trump’s election on deal activity in South Africa and Africa would depend on the extent to which the president-elect’s campaign positioning translated into policy.

Should the US move in a more protectionist direction, cross-border deal activity could be hurt, particularly if protectionism became a global trend.
“Donald Trump has expressed negative sentiments about South Africa. If this translates into a changing foreign policy relationship with South Africa, it will negatively affect sentiment and could affect deal activity,” Du Plessis added in a release to Mining Weekly Online.

Meanwhile, the US dollar first fell 2% against a basket of world currencies and then recovered some ground.

The Japanese yen strengthened 1.9% and Swiss franc rose 1% against the US dollar with any further rally expected to be capped by the threat of central bank intervention.

In China, gold trading on the Shanghai Gold Exchange surged with the volume reaching 330 t, 102% higher than the level after the Brexit vote in late June.

Gold trading is also expected to intensify in Europe.

“We believe that retail demand will also surge, as investors wake up to a fundamental political change in the world’s largest economy,” the WGC said, adding that gold had broken key technical levels, surpassing its 200-day and 100-day moving averages.

The next relevant technical levels are $1 350/oz, $1 375/oz and $1 400/oz.

Going into the election, gold options positioning at the Comex gold exchange in the US was already pointedly bullish, with above-$1 275/oz strike prices lending further support to goldin European markets.

Global political and economic environment continues to be supportive of the gold price, with the post-election odds of a December interest-rate hike by the US Federal Reserve  falling to below 50% from 82% seen as being gold friendly.

The extent of global political risk in advanced economies is evidenced by the pound remaining under pressure as expectations of a ‘hard’ Brexit linger and Europe enters its own election season with many anti-establishment parties seemingly gaining in popularity.

Elections in Italy, France, Germany and Holland could see these parties increase their share of the vote.

The WGC sees the intense political uncertainty that advanced economies are now facing, combined with the unknown aftermath of years of unconventional monetary policies, as rendering gold particularly valuable to investors in the coming years.

Thomson Reuters GFMS Head of Metals Rhona O’Connell made the point that the pro-gold reaction post Brexit outdid Trump by some margin and it is important to remember that headline grabbing policies are likely to be tempered by advisers to a point where gold can be expected to mark time for now.
On balance, though, O’Connell expects the market to develop a buy-on-dips pattern rather than selling rallies, especially if an economic phase is on the way that raises the spectre of a widening budget deficit.
She notes that base metals have strengthened in US dollars and other currencies, which she sees as being indicative of some uncertainty has been taken out of the market. 


Source: Engineering News