Gold had its heaviest-ever trading day as Donald Trump’s victory proved to be a huge win for gold brokers. finews.asia features a commentary on the unexpected events from precious metals expert Joshua Rotbart.
How can one man have such a significant influence over the noble yellow metal? If your name is Donald Trump, it makes it easy. Our research found a 75 percent positive correlation between the Trump campaign gains and the gold price in the 30 days before the elections.
The come-from-behind win for Trump triggered a surge gold prices in a trend that is likely to continue in short-term.
Most Influential Macroeconomic Event of 2016
The controversial and eventful US elections may be the most influential macroeconomic event of 2016 that its potential impact could expand into 2017 and beyond. For months the gold prices did not react to the developments in the U.S. elections as long as the consensus leaned over a Clinton close win and the gold market was more focused on the upcoming rate hike.
However, in the last month before the Election Day as the Trump campaign gained more support in polls and a Trump victory seems like a probable scenario, gold prices surge to reflect the global economic uncertainty. As shown below this trend peaked after Trump won the race, sending gold prices 3.5 percent higher above $1,300/oz.
Trump’s strong and vocally expressed opinions on foreign affairs, jobs, taxes and the economy together with his lack of political experience drives some uncertainty in the market. This uncertainty is backed by a number of speculations that extrapolate Trump’s statements into political actions that will impact the U.S. relationship with Mexico, China, and Russia.
2017 Anxiety Building
Other speculations about Trump’s possible actions in the U.S. economy suggest that the economy will slow down. Even though, it’s hard to predict how a Trump presidency will look like, the high 75 percent correlation between Trump campaign gains and the surging gold price prior to the Elections and the immediate reaction in gold prices after actual results came in reflect the concern that the above speculations will materialise.
Adding these speculations to the uncertainty in Europe over the Brexit fallout, the upcoming French and Italian referendums and the German elections in 2017 brings anxiety in global markets to a high level.
This high level of anxiety can be viewed in Simon Johnson’s outlook: «The election of Donald Trump in the US would cause the stock market to crash and plunge the world into recession», said Johnson, a former Chief IMF-Economist and a professor at MIT Sloan
Even though we cannot adopt Johnson’s extreme view it illustrates the market’s biggest fear of a worldwide financial turmoil. Whether these pessimist scenarios will materialize or not, most investors prefer to be on the safe-side and shift money into safe havens like gold. The surge in gold prices after Trump was elected president lays the ground to assume that this trend will continue in the short term and drive further appreciation in the gold price.
Joshua Rotbart, is managing partner of J. Rotbart & Co., a Hong Kong based firm specializing in investments in gold and other precious metals.
