The Federal Reserve’s decision to improve interest rates on December 14 ought to have actually been the death bell for gold, a commodity that is highly sensitive to monetary policy. Yet something pretty strange is happening to bullion: not just has actually it strengthened in the wake of the Fed’s decision, it has actually done so despite a more powerful U.S. dollar. Conventional wisdom suggests this shouldn’t be the case.
Gold futures are up nearly $100, or 8.3%, due to the fact that the December 13-14 Federal Open Market Committee (FOMC) meeting. All of others points being equal, the last two fee hikes ought to have actually been poor for the yellow metal. That’s due to the fact that rising interest rates motivate investors to relocate capital to the U.S. This pushes up the value of the U.S. dollar in which gold and others precious metals are denominated. due to the fact that these metals do not pay interest, the opportunity cost of holding them is better as soon as rates rise.
Gold’s resilience over the last three months can easily be partly explained by Donald Trump’s surprise election win. Trump has actually vowed to stimulate economic growth through a cocktail of unproven policies that could have actually unintended consequences for the world’s largest economy. The brand-new administration has actually additionally taken a decidedly protectionist approach that lots of investors fear could undermine global trade flows. Trump has actually already backed from the Trans-Pacific Partnership (TPP) and ordered a review of the North American Free Trade Agreement (NAFTA). These policies have actually fueled anxiety regarding the global economy, making gold and others risk-off assets much more attractive for investors.
A lack of clarity regarding Trump’s economic policies might have actually been among the leading induces to fuel risk aversion in the financial markets. Despite the fact that Trump has actually assured “phenomenal” tax reform and called for a formal review of essential financial regulation, the brand-new administration has actually yet to offer a concrete strategy on exactly how it will certainly stimulate the economy.
However, the brand-new U.S. administration isn’t the just source of geopolitical uncertainty. Elections in France, the Netherlands and Germany are looming, provoking comes to regarding the rise of populism and the future of the European Union. As investors seek a haven from political uncertainty, gold will certainly go on to provide value.
Gold isn’t the just metal in the midst of a prolonged uptrend. Silver prices are additionally trading at three-and-a-half month highs, having gained much more compared to 15% due to the fact that the begin of 2017. This has actually pushed gold’s relative value to silver sharply lesser in recent months.
After stumbling at the begin of the year, the U.S. dollar has actually additionally regained energy in recent weeks. This included a streak of 10 consecutive gains through the very first two weeks of February. Those gains failed to erode self-confidence in gold, which continues to stand firm.
That being said, gold’s upward trajectory could still run in to resistance in the second quarter ought to the Fed improve interest rates again. Markets expect a 3rd interest fee hike by June, according to 30-day Fed Fund futures prices.
 Robert Schroeder (February 9, 2017). “Trump says ‘phenomenal’ tax announcement coming in weeks.” Market Watch.
 Eddie Van Der Walt (February 19, 2017). “Gold Isn’t Behaving in Method The Method It ought to in Theory.” Bloomberg Markets.
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