Gold “Trumps” Dollar amid geopolitical concerns

Gold is always considered as a safe haven by investors when compared to other investments like stocks, bonds, and currencies. Extending its recent upward trend, Gold prices have gained 6.5% year-to-date with Spot gold price reaching its five-month closing high of $1,288.50 an ounce. Due to the recent geopolitical concerns and uncertainty prevailing in the US economic policy under Trump administration, precious metals are seeing a revival in demand amidst investors. Spot Gold price was expected to reach up to $1300 as it surged intra-day to $1297.

Also, the dollar index consolidated losses and fell below its key 101 level to reach 99.499 as of 18th April 2017. Fed Chair Janet Yellen’s comments about interest rate hikes in December weighed on US Treasury yields and investors started looking for safe havens like yen and gold. The dollar index has dropped 0.77% and the Japanese yen surged 0.36% against the dollar at 108.52 per dollar. The increase in Gold price was also due to the decrease in U.S dollar value because of the comments from President Donald Trump who mentioned the Wall Street Journal that U.S dollar” is getting too strong”.  The U.S. dollar was also pressured by lower Treasury yields, but analysts are hoping that dollar will strengthen over time based on the outlook for U.S. monetary policy

Gold prices are having a bullish trend and have surged 5% in January alone. The key factors for the rise in gold price were the lack of clarity on US economic policies and Fed interest rate hike in December. Also, concerns over the uncertainty of Trump’s foreign trade policy and outcome of upcoming French elections has kept the market prices of precious metals like gold and silver on the rise. Gold price also increased earlier in March due to Trump’s failure in successfully implementing his health care reform bill in American legislative. Gold is always preferred by investors when other macro indicators are looking gloomy and has taken a lead amid a weakening dollar which is having a dull period since November 11, 2016.

Even GBP had surged along with gold, while U.S dollar and the stocks fell due to investor concerns over geopolitical stability after the announcement of a snap election for June by Britain. Sterling rallied as high as 2.7% against the USD to reach its highest level since Oct 2016. The equity markets also took a hit and shares dipped in Asia with Nikkei Index of Tokyo Stock exchange coming down by 1.5%. The Dow Jones Industrial Average dipped by 113.64 points to 20,523.28 and the Nasdaq Composite fell down by 7.32 points, or 0.12%, to 5,849.47. The unexpected quarterly results from big Corporates like Johnson & Johnson and Goldman Sachs brought down the major stock indexes. Such kind of market fluctuations is always good news for binary options traders as they can gain huge profits by adopting various binary options strategies.

The rejection of President Trump’s health care reform bill in the House of Representatives was clearly showed the president’s inability to pass legislation and gain the needed support from his own party members as well. Even the republicans were against his bill and this meant that the Tax reforms and an increase in infrastructure spending will be hard to push through. Investors are deeply concerned about uncertainty in trade policies, interest rate hikes and tax reforms which could be introduced by the Trump Administration. They are also bothered about the possible U.S. military action against North Korea which has brought down the dollar value significantly. The policy freeze-out indicated that there won’t be any spending increases in near future which have punished the dollar severely and boosted gold prices.

Earlier in December, US Fed chairwoman Janet Yellen had increased the key interest rates by 25 basis points to between 0.50% and 0.75%. This was the first interest rate hike after 1 year and the previous rate hike was in Dec 2015. This rate hike caused a buying spree of gold among investors as it’s a safe haven asset. US Treasury yields dropped due to geopolitical tensions and upcoming presidential election in France. Benchmark 10-year notes increased in price to yield 2.1824% from its previous yield value of 2.252%.

Disappointing U.S economic data and rising doubts among investors about the possible tax cuts from Trump Administration have fuelled the growth of Gold prices. Bond yields, stocks, and the dollar are all falling and the yield curves are becoming flattened. The dollar added to earlier weakness against most of its major rivals after the announcement of the first rate hike in 2017 by the US Federal Reserve. They have also signaled two more rate hikes by end of this year which caused a huge disappointment among the traders who were expecting a more aggressive stand over the pace of the tightening cycle. Mike Pence, the U.S. Vice President announced that the US Government is working with its allies and China to put economic and diplomatic pressure on North Korea but added that the United States would defeat any attack with an “overwhelming response”. Tensions in Syria and the possibility of U.S. military attack against North Korea stirred huge fear among investors over the instability of dollar and pushed them to invest on safe havens like gold and yen.

Receive these articles per e-mail

Subscribe for the free weekly newsletter and receive 3 papers about physical precious metals investing