Gold Price…After The Election

December 17, 2016

Contrary to expectations, ours and nearly everyone else’s who pay attention to the price of gold, the yellow metal has since election day, shed nearly 15 percent of its value in US dollars.

According to the pundits who pay attention to such matters, the election of Donald Trump should have pulled the rug out from under stock prices, hammered the dollar against other major currencies, and propelled gold sharply higher.

But once again the pundits have been proven wrong: Stock prices on Wall Street have zoomed to new historic highs and gold has, once again, disappointed.

Despite this failure to perform, our long-term positive outlook for gold remains unchanged.

In retrospect, it is easy to see what happened: Investors and speculators expected a shift in fiscal policy - regardless of the election results - with increased government spending, rising federal debt, and higher interest rates.

The expected rise in federal spending gave Wall Street a boost up despite expectations of higher interest rates, expectations that might have otherwise been a drag on equities.

At the same time, a spate of favorable business indicators raised the probability the Federal Reserve would soon shift to a less accommodative monetary policy. Higher interest rates boosted the U.S. dollar's value in world currency markets... and, in turn, a stronger dollar depressed the dollar price of gold.

Like a self-fulfilling prophecy, hedge funds and other institutional speculators were quick to buy equities and sell gold once it looked like a quick buck could be made on the trade - with more players jumping in once it looked like these trends were continuing.

One thing is for sure: In the short run, financial markets - including gold - dance to their own tune and short-term forecasts, even when based on serious analysis, are often wrong. Hence, to minimize risk and assure lasting returns, we advocate diversification and the inclusion of physical gold in every investor's portfolio.

Over the long-term, however, fundamentals do matter... and, over the long-term, we feel increasingly comfortable with our long-term bullish forecast with gold prices rising to unimaginable heights.

Jeffrey Nichols is Managing Director of American Precious Metals Advisors and Senior Economic Advisor to Rosland Capital.  He has been a leading precious metals economist for over 25 years. His clients have included central banks, mining companies, national mints, investment funds, trading firms, jewelry manufacturers and others with an interest in precious metals markets.

One cubic foot of gold weighs more than half a ton (1,306 pounds).