Price falls as investors take profits from earlier gains, but longer-term prospects are bullish due to trade and inflation uncertainties
Demand for gold will continue to rise following Donald Trump’s victory in Tuesday’s US presidential election, which will increase trade tensions and uncertainties for the US dollar and US dollar-denominated assets, analysts said, predicting that gold prices will hit fresh highs despite a recent fall.
According to GF Securities, so-called “Trump deals” since the start of October took many expectations into account, leading to a strong US dollar, rising gold prices, falling oil prices, falling copper prices, and volatile US stocks, and the market was likely to trade in the opposite direction in the short term.
Shen Jianguang, chief economist at JD.com, said that in response to Trump’s election “virtual assets such as bitcoin and US bonds have risen sharply” and the price of gold would also climb in the longer term.
Shen said that reflected a broader decline in trust in the US dollar among governments and investors around the world.
“For many regions, particularly those with tense geopolitical relations with the United States, the status of gold, serving as a reliable safe-haven … store of value, is growing,” he said.
Gold has long been regarded as a hedge against economic and political uncertainty, particularly in a low-interest-rate environment. The price of gold hit a record high of US$2769.25 an ounce on October 29, having risen nearly 35 per cent this year. On Wednesday, spot gold dropped 3.1 per cent to end at US$2,659.24 an ounce.
In a report released last week, UBS forecast the price of gold would reach US$2,900 an ounce by the end of the third quarter next year, with a Trump victory to accelerate that climb given his views on tariffs, government spending, taxes and interest rates.
Many international investors have been nervous about chasing gold prices higher, Goldman Sachs Research analyst Lina Thomas wrote in a report last week.
She said the price is set to rise to US$3,000 an ounce by the end of next year.
Shen said gold will reach new highs in the long term, due to the impact of the US central bank’s increasingly lax monetary discipline on the US dollar’s global standing.
“First, the Federal Reserve’s quantitative easing in recent years has expanded its balance sheet to US$8 trillion; second, the US government has used the US dollar and tariffs as a tool for financial sanctions, causing many countries’ central banks to actively or passively dedollarise and turn to gold and virtual currencies,” he said.
Shen said Trump’s tariff policies would have an impact on global trade, especially for China. The yuan had already depreciated a bit in response, making gold more attractive for Chinese investors as a hedge against exchange rate and yuan asset uncertainty.
In the first three quarters of this year, gold consumption in China fell by 11 per cent year on year to 742 tonnes, according to the China Gold Association, which said high prices had put off consumers. Chinese consumers bought 400 tonnes of gold jewellery, a year-on-year decrease of 27.53 per cent, but they purchased 282.721 tonnes of gold bars and gold coins, up 27.14 per cent year on year, the council said.
Wendy He, the administration director of a private company in Guangzhou, said she bought gold bullion worth 50,000 yuan (US$6,979) through online banking while watching television coverage of presidential election votes being counted in Pennsylvania, a key swing state that pushed Trump closer to victory. She had already bought gold bullion worth 200,000 yuan the same way last month.
Read the full article HERE.
