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On Friday, gold had another rough day as a stronger US dollar and a rise on stock markets already around record highs diminish appetite for the hard asset.
Gold futures in New York for delivery in August, the most active contract, fell to a low of $1,319.40 in early trade before regaining some lost ground at the close. Two weeks ago gold closed at a two-year high of $1,368.
Year to date the metal remains higher by 24% or some $270 an ounce, the best annual performance in decades.
Georgette Boele of ABN Amro in a new research note charts gold movements during US presidencies going back to Gerald Ford 1974–1977 term to ascertain the possible impact on the price during a Hillary Clinton or Donal Trump presidency.
Boele says during the 1980s and 1990s, gold was first and foremost regarded as a hedge against inflation and during the Presidencies of Ford, Carter, Reagan I, Reagan II, George Bush and Clinton I, the consumer price index and gold prices moved in the same direction.
During Bill Clinton’s second term however as inflation fears eased other factors began to influence the gold price to a greater extent according to the report. Several factors including a fiscal surplus in the US, a rise in US yields and a stronger dollar resulted in a 26% fall in the price of gold during Clinton II.
Source: ABN Amro
Taking into account safe haven demand, interest rates and the dollar Boele argues that on balance a President Tump would be more bullish for the gold price although no matter who is sworn in next year, gold will remain supported:
Gold prices will remain supported if Democrats win…
Our forecast horizon does not cover the four years of the upcoming Presidency. Our forecasts cover up to the end of 2017. Our base scenario (with Democrats wining the elections) suggests that US economic growth will remain below trend, improving only slightly in 2017. Such a result will be supportive for gold prices for the following reasons
1. Inflation will likely be higher than growth
2. Real interest rates are forecast to remain negative (less negative though)
3. The longer-term US dollar has turned negative.These are all supportive factors for gold prices. However, despite uncertainty on financial markets we don’t expect a new major crisis in the making. As a result, safe haven flows towards gold will likely be muted. All-in-all, gold prices will likely rise a moderate pace towards USD 1,650 per ounce over the coming years.
…while a Trump victory could result in even higher prices
If Trump were to become President (low probability in our view), gold prices will likely perform well, because we expect that his policies will be inward looking and will weaken the fundamentals of the US economy. In addition, his rhetoric and possibly policy actions could create domestic and international uncertainty at beast, and upheaval at worst.
Our US economist expects that economic growth would be weaker. This will likely result in a more substantial rise in gold prices towards USD 1,850 per ounce over the coming years.
A big risk factor to this rosy outlook is if the Federal Reserve raises rates at a faster than expected rate due to strong economic growth, but the Dutch bank says that’s unlikely. ABN Amro forecasts a gold price of $1,350 an ounce by the end of the year, rising to $1,450 an ounce at the end of 2017. That’s substantially higher than its previous forecasts which called for triple digits next year.
8 Comments
Excalibur
“Low probability in our view” – this article just lost all credibility with me. Quit pandering with your agenda. “we don’t expect a new major crisis in the making” – well duh, who does? Of course, however, you need your head examined if you think the world is only becoming more safe and/or secure. Gold has incredible growth potential in the next weeks and months.
Bubba James
What would you expect from a Dutch state own bank?
Alec Dacyczyn
This lost credibility with me at:
ExPat
The outlook presented in this article is not optimistic enough to satisfy gold bugs – So be prepared for criticism. I do not think that the election of Hillary Clinton, in and of itself, would raise the price of gold – She would be a continuation of the current, fairly liberal regime, and would not have the will to make meaningful changes. Gold prices would rise in response to Donald Trump’s election, since he would make sweeping changes to international trade and US fiscal policy. Trump’s policies may or may not spur US economic growth. And it seems like there is only a remote possibility that Trump would get elected. I do not see a likely scenario the would cause the price of gold to break above $1,500 this year.
Walter H. Eason, Jr.
With the aspect that Clinton has married her ideals with Obama and the continuing degrading of American life and unity coupled with heightening terrorist attacks under present rule. The last comment is based on current US threat assessment leaders under this administration. I would see a substantial increase in US along with growth uncertainty. Under Trump seems like a much stricter abiding in law and immigration resulting in a safer interior. This should increase incentive to start businesses and there seems to be a lot of merit to increasing internal business which likely would decrease imports and maybe increase our GNP.
Taking a overall look at the article I would say that the writer is slanted towards Clinton politically but was attempting to be honest but had a bit of a hard time of it.
SJEqualizer
My thoughts exactly. No mention of Hillary’s rhetoric or the fact that she’s a pathological liar.
EMILIO ZUNIGA
Likely true, with Trump gold may skyrocked if he is serious in his policies. The turbulance in the world economy will increase, adding more uncertainty to the Brexit. But there is no need to have a gold price beyond US$ 1,300, as gold companies at this price can have enough cash to expand.
Garrett F
Better count on being a gold only economy if Hillary somehow weasels her way in