The Trump factor — how high will gold go?
How high will gold go in the face of the current uncertainty around the Trump administration?
That is the question being posed by VanEck Australia, which has this week noted that the gold price has surged back above US$1,200 per ounce after ending 2016 at US$1,146.
VanEck Australia director, investments and portfolio strategy, Russel Chesler pointed to the fact that gold mining stocks which provide leverage to the gold price had enjoyed a surge in January with VanEck's Vectors Gold Miners ETF also being a beneficiary, gaining 8.79 per cent for the month.
"Prior to Trump being sworn in, the market had ridden a wave of euphoria. Equity markets were focusing on Trump's planned stimulus however his proposal to have Mexico ‘pay' for the wall via a tax on Mexican imports and the implementation of his immigration policy have caused markets to reassess what a Trump presidency may actually mean," Chesler said.
"So far Trump's policies have caused uncertainty. The question now is will the current gold run last?" Chesler said.
He claimed gold was not just responding to political uncertainty but also to fears of inflation.
"Gold has traditionally been used by investors as a hedge against rising inflation and fiscal stimulus could support the rise of inflation in the US," Chesler said.
"Infrastructure spending, tax cuts and deregulation could still occur with Republicans in control of the White House and both houses of Congress. All of these policies could encourage spending and put pressure on prices."
"Furthermore if you look back historically since Nixon abandoned the gold standard in 1971, there have been seven new US presidents inaugurated to the White House prior to Trump. In the year following each of those inaugurations gold has outperformed equities five out of seven times."
"With rising inflationary pressures and significant concern regarding the stability of Trump's leadership, gold is well positioned to rally in 2017," Chesler said.
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