Since Donald Trump’s election in November, it’s been a teeter-totter act in the U.S. gold market. With uncertain times on the hazy horizon and emotions running high with every news story from adversaries and tweets from the president-elect himself, it’s becoming difficult to separate true market change and mere knee-jerk reaction.
Trump Trumpets Again
As the start of the year rolled in, investors remained seemingly unconvinced with the prospects of gold, yet were still unsure about the future of the U.S. economy. The gold markets hit an eight-week high yesterday and not because it was following recent trends. In fact, it was another immediate response to a statement the president-elect made during an interview with the Wall Street Journal. He is on record saying:
“Our companies can’t compete with them now because our currency is too strong. And it’s killing us.”
Investors took this comment as an indication of what the U.S. has in store for the future and the dollar took a nosedive, falling about 1 percent percent while spot gold and gold futures both rose slightly over 1 percent. Trump’s comments about the U.S. currency came after the dollar rallied to a 13-year high after his election. The dollar fell compared to nearly all major currencies yesterday, but where it is headed for the remainder of the week is unclear.
No one can be sure if Trump’s comments truly are a window into the future, but with little information to go on, investors, including gold investors, use every comment, tweet and interview to gauge what will happen and when it will happen.
Safe Haven Investment During Uncertain Economy
Gold becomes a more attractive investment when the U.S. dollar declines. This safe haven investment becomes a preferred investment when the economy looks shaky or when interest rates are low. Of course, we have seen similar market reactions to other Trump comments and they generally have a short-term effect. Comments and sentiments only go so far; eventually, the only way to impact the market for a long period of time will be through fiscal policy.
Market reactions to spur gold along were also fueled by the U.K. Prime Minister announcing that their exit from the European Union will be under parliamentary review and could lessen the potential political and economic impacts.
Gold may continue to be a safe haven option even following Trump’s inauguration this Friday. Until more stable fiscal policy information is available, the market will continue to remain on the edge of its seat.
