A desire to hold “real assets” in turbulent times has massively boosted the popularity of gold-backed exchange traded funds (ETFs). But following the biggest political upset of the year — Donald Trump’s US presidential victory — gold prices have gone into reverse.
After a brief rally following last week’s election result, gold ended the week down 5.2 per cent at $1,234.50 a troy ounce as the dollar rallied, and investors ditched traditional haven assets. In contrast, gold rose by $100 a troy ounce in the two weeks following the Brexit vote in June.
That was a disappointment for investors in the yellow metal, who have ploughed a record $64.5bn into gold-backed ETFs this year, according to the World Gold Council. In the third quarter, 78 per cent of the inflows were into European-based products according to their data.
The direction of future gold prices greatly depends on whether that investor flow stabilises — and, if not, whether demand from India and China, the two largest consumers, could help support the price.
Gold is still up 16 per cent this year in dollar terms, and 36 per cent measured in pounds. That compares with a return of about 12 per cent for the FTSE 100 index (with dividends reinvested) and about 4.68 per cent for the FTSE All-World Index.
Global markets avoided the feared “Trump slump”, with equities rallying on hopes the president-elect would boost spending and growth in the US economy. But gold could still benefit from his plans to boost infrastructure, according to analysts.
“Mr Trump’s policies could result in bigger public deficits, this could mean higher inflation and be supportive of gold,” says Jim Steel, an analyst at HSBC in New York.
Political uncertainty is also not going away. Investors in Europe are now turning their attention to elections next year in Germany and France, according to Alistair Hewitt, head of market intelligence at the World Gold Council.
“In Europe, we’ve got a very active political calendar next year and investors are thinking about the implications of that,” he said.
Still, the outlook for gold is likely to be heavily determined by the central banks — especially the Federal Reserve.
