Gold pares Trump win gains but bull run seen continuing

Gold has shed some of its earlier gains but, with more volatility expected in the next few weeks while markets brace for Donald Trump’s first moves as US president, the metal is set to trend higher, market participants said.

Gold is enjoying its biggest rally since the UK voted to leave the European Union in June. The spot gold price was recently quoted at $1,302.30/1,302.60 per oz, down from the high of $1,337.50 per oz it hit earlier – its strongest since September 30 but still up $29 on the previous close.

The precious metal was trading at $1,275 per oz before the vote counting began. It surged to just shy of $1,340 per oz, an increase of 5%, before shedding half of those gains.

“We find this somewhat surprising given that Trump’s election win means great uncertainty, both economically and politically,” Commerzbank said in a note. “After all, there is the risk of trade conflicts with a number of countries under Trump, who took a highly protectionist stance during his election campaign.”

As well, Trump’s victory gives a boost to anti-establishment parties in Europe. Elections and referendums will take place in various European countries in the next few months that could change the political map, the bank added.

“Short-term volatility in the wake of this election is inevitable, as it signals a major political and economic change,” Natalie Dempster, managing director for central banks and public policy at the World Gold Council, said.

“We are seeing increasingly fractious politics across the advanced economies, and this trend, combined with uncertainty over the aftermath of years of unconventional monetary policy measures, will firmly underpin investment demand for gold in the coming years,” she added.

As well, the Trump election is very likely to have an impact on the Federal Reserve’s monetary policy, market participants noted.

Trump is already hinting that he may not renew incumbent FOMC chair Janet Yellen’s contract when her first term ends in 2018, prompting some speculation that she may depart sooner, market participants noted.

“Given the fresh uncertainty over the outlook for interest rates it may well be that, while the markets are looking at all these winds of change, gold will also have to continue doing what it has been doing at least for the past three years – Fed-watching,” GFMS said.

The probability of the Fed raising rates in December has slumped to below 40% from above 80% yesterday, according to CME Group’s FedWatch tool. Equity markets have been spooked by Trump’s unexpected win, with Japanese stocks hit hardest – the Nikkei 225 index closed down 5.4% earlier today.

“This, coupled with the economic and political uncertainty that may well continue for months, points in our opinion to higher gold prices – for at times of uncertainty gold is normally in demand as a safe haven,” Commerzbank said.

(Editing by Mark Shaw)

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