A year on it’s the weak dollar not a Trump tweet that could push gold

One year after Donald Trump’s inauguration, the US economy looks to be at capacity. Glint speaks to the experts who believe this cycle, rather than Trump’s politics, is set to push gold

A year after Donald Trump took office his impact on the price of gold has remained limited, with fluctuations being attributed to cyclical movements in the economy rather than policy reactions.

Although gold spiked to $1,334 on the night of Trump’s election in November 2016, it sequentially dropped down to $1,273 as equity markets rallied, beginning an equity boon that continues to run. Throughout his first year as president, having been sworn in on 20th January 2017, Trump’s foreign policy and combative media statements did see other spikes, notably following his war of words with North Korean leader Kim Jong-un, an event that saw gold nearing a 12-month high of $1,338.16 in September last year.

However, the US president’s impact on the gold price should not be overstated say leading experts. Rather, the state of the US economy – at capacity and depressing dollar value – is dictating gold price. “The economy is now strong and overheating and the result of that is that bond yields and inflation are rising,” Charlie Morris, CIO at Newscape Capital Group told Glint. “Inflation is obviously very important to gold and the result of that is that the price [of gold] is rising. The big wave of higher inflation interest rates that kicked-off last year are in line with that.”

The value of the dollar has declined since Trump took office. Source: Thomson Reuters Eikon.

Gold’s rise has been “flattered” by the weakening dollar, said Morris. Referencing twin fiscal and trade deficits and QE, as well as the low tax environment sought by Trump: Arguably where the president’s influence is being felt most when it comes to the gold price. On Trump’s geopolitical interventions Morris was dismissive: “None of that stuff matters in the medium to long-term. From a price factor, all macro ‘events’ are temporary.”

Morris’ words were echoed by a hedge fund CIO who said gold was set to benefit from the end of growth’s upward trajectory. “The US economy is at its peak. Trump has come in at the height of the dollar and low unemployment and it is just weakening from there. The decline of the dollar should be good for commodities and gold.”

They believe gold is currently undervalued as a result: “With the extent of the dollar weakness since early 2017 to now, almost 15%, you would expect gold to be over $1,400. Closer to $1,500 on a historical correlation basis.”

Lows for the dollar, down against the pound and the euro, come as Germany announces it is to hold Chinese renminbi as a reserve currency in its central bank.

Gold vs the dollar index

Gold has gained approximately 2.35% against the dollar since the beginning of 2018. Asked if he was more bullish on gold in 2018 than 2017, Morris was clear: “Absolutely. It’s not a gold bull market – but it’s a positive phase. It’s a cyclical upturn within a neutral environment, that’s the key point.”