Gold Price Should Go Higher On Global Risks and Trump – Capital Economics

The gold price should rise in the medium and long term on global risks and the Trump Presidency, according to leading research consultancy Capital Economics.

The recent sharp gold price fall is again causing jitters among some investors who forget that gold remains more than 14% higher in dollar terms, 16.5% higher in euro terms and 36% higher in sterling terms year to date. Thus, gold is outperforming most stock market indices so far this year.

Capital Economics commodities economist, Simona Gambarini suggests in the World Gold Council’s ‘Gold Investor October 2016’ newsletter there is further upside to the gold price even if US interest rates begin to rise. Hence its continuing importance as a diversification and as a safe haven asset.

“Going forward, lingering global risks should ensure that demand for gold as a safe haven asset remains elevated even in light of Fed tightening.”

Gold is likely to benefit from Trump’s presidency for four reasons:

1. More aggressive fiscal policy could increase domestic demand and inflation. Many investors argue that gold is a good hedge of inflation, although its inflation-adjusted performance shows otherwise. Still, there could be strong demand for gold. If the Federal Reserve raises interest rates in response to higher inflation, higher inflation should keep real rates low, supporting gold; gold does not bear any interest.
2. If the protectionist policies that Trump threatened (like tariffs on China) trigger a trade war, US exports would suffer, and an economic slowdown would help lift gold prices.
3. Similarly, Trump’s geopolitical policies could cause more uncertainty, prompting some investors to buy gold for safety.
4. Trump has touted a return to a gold-based monetary system. That’s very unlikely, however.

In short, the bullish view on gold under Trump rests on the expectation that his policies would keep the world on edge, and that his fiscal spending plans would accelerate inflation. Gambarini forecasts that gold will rally to $1,450 per ounce by the end of 2017.

Once again it is time to fade the noise and fearful sentiment in the gold market and focus on the long term diversification benefits of gold.

Read full excellent ‘Gold Investor October 2016’ here