Gold Prices Rise as Investors Hedge Against Political Uncertainty
Gold Prices Soar on Trump Concerns
Gold prices gained on Thursday against a weakening dollar as investors are looking to the precious metal as a hedge against political uncertainty across the world, including in the United States and Europe.
The recent turmoil in U.S. politics has become a boon for gold prices this week. After a low point in mid-December as the U.S. economy was picking up steam, gold climbed on Thursday by half a percent to $1,238 per ounce. Since the mid-December fall, the price of gold has risen about 10%.
European nations have taken note of U.S. President Donald Trump’s rocky start. The Netherlands, France, and Germany this year have all looked to gold as a hedge commodity against uneven political developments across the globe. Upcoming elections in all three of the aforementioned European countries have only deepened the political volatility in the continent.
U.S. Federal Reserve Chair Janet Yellen said that American interest rates may be raised this coming March. That announcement dropped gold prices to $1,216 per ounce on Wednesday, its lowest level since February 3.
Both a higher dollar and higher U.S. treasury yields would contribute to a weaker gold price, as a stronger dollar increases the cost of gold versus other currencies. Higher treasury yields deepen opportunity costs of holding non-yielding bullion. Higher rates set by the Federal Reserve would only compound that effect.
Speaking to Reuters, Jens Pedersen of Danske Bank A/S (CPH:DANSKE) said that both the upcoming European elections and the potential fallout for the euro currency, combined with the U.S. economic developments following President Trump’s first few weeks in office, have all contributed to investors buying gold as a hedge.
Fear of U.S. inflation has also spurred gold purchases.
Economic uncertainty continues to push investors towards physical gold over paper alternatives. In India, for instance, physical gold trades are more popular in less-developed areas, where they lack the ability to go online and purchase gold investments.
As such, physical gold in India is priced at $439.00 per 10 grams, higher than the current $398.00 per 10 grams for paper gold. (Source: “Rural India sells household gold for cash,” The Economic Times, February 16, 2017.)
Also Read: Gold Price Forecast for 2017