A Trump Fillip for Gold

November 9, 2016 at 08:34


Donald Trump’s favorite metal is loving the election result.

Spot gold is up as much as 4.8 percent on the day. That’s the sort of increment precious-metals traders can usually expect to see less than once a year. It’s now occurred three times in 2016.Gold rarely moves more than about 1 percent in a day, and it’s only shifted more than 4 percent on 13 occasions since the start of 2000. Five of those events happened over a four-month period at the peak of the global financial crisis.

The question for traders at this point is not so much what happens immediately, but whether the metal will hold or lose its gains as investors get a better handle on the political state of play and cut their flight-to-safety trades.

For all gold’s traditional haven status, the record is mixed. Of the 12 occasions when the metal gained more than 4 percent, it was still up 90 days later in seven instances, and fell five times. As we’ve argued before, big one-time shocks don’t so much reverse gold’s long-term trend as follow it.Gold bears in need of comfort Wednesday might want to note that the last big positive shock for the metal — June’s Brexit vote — resulted in a 3.1 percent decline over a 90-day period.

Overall, though, the odds for the precious stuff are looking rather good. The 50-day moving average price, which was headed for a very bearish cross below the 200-day average earlier this week, is flattening out thanks to Wednesday’s climb.

U.S. Treasuries are surging, suggesting the market thinks a Trump presidency would reduce the odds of the Federal Reserve raising interest rates (higher rates being a bearish outcome for gold.) And in India, which has seen notably weak demand for gold jewelry in recent quarters, Prime Minister Narendra Modi’s decision to remove 500- and 1,000-rupee notes from legal tender is causing a rush by small investors to convert high-denomination cash into metal instead.

Above all, gold has the Trump factor. Until investors work out the economic and geopolitical ramifications of the result, gold could be as volatile as the Republican leader. As he told the Washington Post in March:I always say we have to be unpredictable. We’re totally predictable. And predictable is bad.The temperature around gold has always risen whenever there’s uncertainty. The most powerful man in the world appears to favor both the symptom and the cause.