Research Team at HSBC, suggests that the Trump presidency, the course of Brexit, and elections and other political events in the Eurozone will help shape gold prices in 2017.
“Protectionism: Mr. Trump is strongly identified as a populist and ran on populist polices. Historically gold is buoyed by populist polices, as they typically inject a degree of uncertainty and risk into financial markets. We believe Mr Trump’s policies will be no different, particularly as they impact gold. A main plank of Mr. Trump’s brand of populism is protectionism, notably the imposition of high tariffs.
During periods of expanding trade, countries most actively involved in trade enjoy outside economic growth. Additionally, geopolitical risks typically fall, economic policies tend to be better coordinated and economic disputes between nations, such as trade and currency wars, are reduced. This in turn reduces the need to own a safe haven asset, like gold. Periods of low growth or contractions in world trade, such as occurred during the financial crisis, typically also see economic dislocation, a rise in economic disputes and policy misalignment, all of which can lead to trade and currency wars.
The risks of a destabilising global trade war have risen with Trump being elected. In his pre-election rhetoric, Trump spoke of “currency manipulation” by China and suggested he would put a 45% tariff on imports from China. Other countries were also singled out. The investment demand for gold is likely to rise in such an environment, even if Mr Trump does not fully carry out his threats. The possibility of significant RMB weakness as a result of Mr Trump’s policies could trigger a broader and deeper risk-off move in global markets altogether. Gold is typically in demand during risk-off periods.”
“Geopolitics: With Mr Trump openly questioning decades old military and political alliances and the European ideal under attack first by Brexit followed by a rise in anti-European sentiment in important European nations, it appears likely that investors will move increasingly into gold.
Gold prices dropped notably in the wake of Mr Trump’s election, as equities and the USD rallied. The logic behind this appears to be a reflation trade. The spending on the military and infrastructure coupled with tax cuts have spurred equities and the USD higher and lifted bond yields. We believe the gold decline will be temporary and that as global risks increase and uncertainty increases globally gold will be utilized increasingly as a safe haven and flight to quality asset. A key that gold has over paper assets, notably currencies, is that it is immune from intervention. For 2017, gold could rise further to USD1,550/oz by year end with an average of USD1,410/oz.”
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