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Political Uncertainty Driving Investors to Gold and Silver - WSJ

Political Uncertainty Driving Investors to Gold and Silver - WSJ

Release Date:  Friday, February 10, 2017

Gold prices continued their upward drive despite a pullback on Thursday to end the week higher. “This week [gold] reached a new three-month high – it’s highest since the Trump win and has climbed over 6% this year, beating the gains made in the same period in 2016 …

It is not just in Trump’s case that conventional rules no longer apply, they also appear to have been thrown out the window for precious metals in these first few weeks of 2017, namely that a strong US stock market means weak gold. Instead apparently strong economies, a record breaking stock market and recent highs for gold all seem to be able to exist in one realm of reality.” (“Gold Prices Up 5.8% YTD As Trump ‘Honeymoon’ Ends,” The Market Oracle, 2/10/17.)

Gold ended the week up $13.40, closing at $1233.90. Silver prices closed at $18.40, up $0.81.

Political Uncertainty Driving Investors to Gold and Silver - WSJ
The Wall Street Journal reported that investors are flocking to gold as protection against global political uncertainty.

“Gold prices rose to their highest level in nearly three months on Monday, reflecting investors’ anxiety over a rapidly evolving global political landscape … Gold’s move higher in recent weeks has been remarkable, coming as it has during a period in which U.S. and global economic data have generally been improving. Some investors buy gold when political or economic uncertainty increases, believing the precious metal will hold its value better than other assets in shaky times …

“Gold’s rise is the latest illustration of how politics has re-emerged as a key driver of markets since last summer, following a years long period during which asset prices were driven largely by the actions of central banks. ‘During the last couple of years, politics did not have much of an impact because they did not threaten the essence of the economic system,’ said Edward Meir, a strategist at INTL FCStone. ‘Now, it’s like a minefield out there. Lots of things can blow …’

“Meanwhile, silver prices rose 1.2% Monday … Besides getting a lift from heightened political uncertainty, silver has also benefited from expectations of a strengthening global economy. Silver is heavily used in manufacturing, making it generally more sensitive than gold to economic fluctuations …

“A weakened dollar and heightened political concerns will drive gold to around $1,300 a troy ounce in the first six months of the year, analysts at UBS Wealth Management said in a note to clients….” (“Anxious Investors Seek Refuge in Gold,” WSJ, 2/6/17.)

Billionaire Investor Returns to Gold - Bloomberg
Bloomberg reported this week that billionaire investor Stan Druckenmiller, who sold his gold on election night, has now acquired gold again both as a currency and a hedge against political uncertainty.

“Stan Druckenmiller, the billionaire investor with one of the best long-term track records in money management, said he bought gold in late December and January, reversing the sale he made after the U.S. presidential election. ‘I wanted to own some currency and no country wants its currency to strengthen … Gold was down a lot, so I bought it.’

“Druckenmiller, who had held a gold position going into the November election, sold it on election night, explaining in a CNBC interview that he was optimistic that President Donald Trump’s administration would bring deregulation and “serious” tax reform that spurs growth. Those benefits, he said, were expected to outweigh concerns about more protectionist trade policies. ‘All the reasons I owned it for the last couple of years seem to be ending,’ he said at the time …

“In December, both U.S. Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi warned that economic growth could be derailed, comments that spurred Druckenmiller to make his purchase. So far it’s paid off, as confusion over Trump’s policies helped rekindle haven demand for the precious metal. Gold is also benefiting from speculation that the Fed may be more cautious in raising U.S. interest rates amid concerns that the new administration’s policies could stifle growth … Uncertainty over whether Trump will back the House Republican tax plan is another reason Druckenmiller bought gold, he said….” (“Druckenmiller Bought Gold After Reversing November Stance,” Bloomberg, 2/7/17.)

2017 a Great Year for Precious Metals Says Author of “Precious Metals Investing for Dummies”
The author of the popular “Precious Metals Investing For Dummies” and “High-level Investing for Dummies,” Paul Mladjenovic, told MarketWatch that 2017 will be a great year for gold and silver.

“Question: How has trading for gold and other metals changed with Trump as president?

“Mladjenovic: In 2016, gold/silver were more of a “safe harbor” trade but the new administration looks to unleash more spending along with tax cuts, which means that gold/silver can be bullish due to inflationary expectations …

“Q: What was your view on gold before we knew the winner of the U.S. election and how has that changed since Donald Trump became president?

“I felt that had [Democratic nominee Hillary] Clinton won, gold would have risen sharply as a safe-harbor vehicle. With Trump, gold will not go up sharply until some of his pro-spending policies hit and policies/crises unfold in other parts of the world landscape, such as the world debt bubble pops. I am bullish on both gold/silver and believe that both will perform well in the remainder of 2017.

“Q: Could you detail the relationship gold has with the stock market? Has that changed since Trump?

“Gold typically has an inverse relationship with the stock market but I believe this will change under Trump. I think that gold and quality stocks have a strong chance of both hitting new highs in due course.

“Gold will go from being a “safe harbor” asset (financial/economic crisis) to an inflation hedge (too much spending/stimulus) … With rising inflation and economic growth, stocks and gold would have a bullish environment while it would become a bearish environment for the dollar.

“Q: Gold has historically traded inversely to the U.S. dollar, but that’s especially true lately. Why?

“Gold and the dollar in recent decades have been competitors—when one does well, then the tendency is that the other does not. I believe that ultimately, the dollar will head in[to] turbulent times during the next 12-24 months due to inflationary concerns and that gold will outperform it …

“Q: Could you offer any price forecasts and what it would take to get prices to those levels?

“I believe that it will be a great year for precious metals. For reasons cited, I expect gold to go north of $1,300 later this year and I believe that silver should hit $25 before year-end. Because silver is experiencing another supply/demand deficit year, it has an outside chance of surpassing $40 in 2019.” (“Gold isn’t done climbing, says ‘Precious Metals Investing for Dummies’ author,” MarketWatch, 2/9/17.)

Investors Snapping Up Gold on Global Fears
USA Today wrote that investors are rushing to gold due to political and economic fears.

“Gold, the yellow metal Wall Street normally flocks to in tough economic times, is shining bright at a three-month high, despite record stock prices and improving economies around the globe. So what’s spooking investors enough to push gold up in price five of the past six weeks and up the first three days this week on its way to a Wednesday close of $1,237.60?

“Here’s a short checklist: Economic policy uncertainty in the U.S. under President Trump. Political anxiety surrounding the populist movement in Europe and elsewhere. Ongoing stimulus from global central bankers. Angst over rising inflation. The U.S. dollar falling in value versus foreign currencies …

“Frank Holmes, CEO and chief investment officer at U.S. Global Investors, says investors are buying gold by relying on simple investment-related math, as well as pricing in some bad economic outcomes if Trump’s plans to slap tariffs on U.S. trading partners like China hurts U.S. consumers by resulting in higher prices of imported goods sold at U.S. stores ...

“But there’s also fear that politics and the unintended consequences of policies, such as building barriers to trade, will harm the economy. If Trump imposes tariffs on imports to the U.S. to protect domestic manufacturers, it could result in U.S. shoppers paying higher prices at retail, and cause inflation to rise sharply and the economy to slow. ‘The collateral damage could be massive to economic growth,’ Holmes says.

“Populist uprisings in Europe could also spook markets if elections in countries such as France result in outsiders with nationalist streaks winning, which would raise fresh concerns over the European Union’s ability to stay whole following Britain’s vote to exit the EU last June. In such a world, gold gains even more luster, and the yellow metal could easily shoot above $1,320 an ounce as it did last June during the Brexit scare, and perhaps as high as its 2016 peak of $1,367.10 in early July 2016, Holmes adds….” (“Investors are snapping up gold. Here's why,” USA Today, 2/8/17.)

Fear of “Frexit” Sends Gold Prices Soaring in Europe
European investors concerned about France’s potential exit from the EU, or “Frexit,” rushed to acquire gold.

“Prices of the precious metal hit $1,236 amid the rising popularity of French presidential candidate Marine Le Pen. The right-wing politician this week pledged a 'Frexit' vote should she win the national elections later this year.

Investors are also nervous over Donald Trump's controversial policies, particular his travel ban on people from seven predominantly muslim countries. Gold is considered a safe haven asset, and prices typically rise during uncertain and volatile times. During the financial crisis prices reached an all-time high of $1,900.

Values could carry on creep up in the coming months, amid the risk of major upsets and possible ruptures in Europe, according to experts….” (“Gold prices SOAR - because investors believe Le Pen's Frexit could DESTROY Europe,” Express, 2/7/17.)