Trump uncertainty stokes demand for gold

SINGAPORE - Gold enjoyed a better-than-usual showing in January, rising some 5 per cent so far in the year.

Analysts say support came from uncertainty surrounding the Trump presidency and elections in Europe, but in the longer term, a stronger US dollar could weigh on the yellow metal.

Spurred by a dovish Federal Reserve meeting which made no reference to the timing of further rate increases, gold price climbed on Thursday as the US dollar weakened.

It traded at US$1,217.44 an ounce on Thursday.

Safe-haven buying has been particularly rife in the past few days, with investors flipping out of equities and into currencies such as the Japanese yen and the New Zealand dollar, noted Jeffrey Halley, senior market analyst at Oanda.

"It's been a tough few days for US dollar bulls as the overriding theme of 2017 - the trajectory of US interest rates - has been subsumed in a constant stream of White House headlines," he said. "The overall effect has been to turn the market into a short-term headline driven beast."

The buoyant performance of the precious metal this year outstrips the average gains of 3.3 per cent that gold made in January in the past 15 years, noted Societe Generale head of metals research Robin Bhar.

Gold's recovery - after having fallen late last year amid a rising US dollar and bond yields following Donald Trump's victory in the US elections - was spurred by three factors.

"Expectations that the Fed will raise interest rates by less than previously anticipated driving US real yields lower, uncertainty over Trump's policies and Brexit have been the key drivers behind gold's recovery to a recent spike towards US$1,220 an ounce ," said Mr Bhar.

In the short term, continued uncertainty could lend support to gold, said OCBC economist Barnabas Gan.

Besides the Trump presidency - "a very big wild card," he said - elections in the Netherlands and France in March and April respectively could cause some risk aversion, he told The Business Times.

"For the first half of the year I'll advise some caution on risk-taking," he said. "Some upside in gold might be seen because of these events."

Nevertheless, OCBC is bearish on gold for the year, expecting the metal to reach US$1,100 at the end of 2017.

The bank expects the US Federal Reserve to raise rates twice this year, which will push the US dollar higher.

Mr Halley of Oanda believes, using technical analysis, that gold has the potential to break higher in the short-term but would run into "some serious longer term resistance".

SG's Mr Bhar, however, said the current rally in gold is losing steam. "A more sustainable rebound will have to wait until later this year."

Still, he lowered his 2017 forecast for gold from US$1,300 an ounce to US$1,150 in the report.

"We foresee headwinds in the form of more aggressive tightening by the Fed, the stronger dollar and subdued physical demand from emerging markets and central banks, driving gold prices lower," he said.

sandrea@sph.com.sg

This article was first published on Feb 3, 2017.
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