This is odd. Conventional wisdom has it that when interest rates rise, gold loses favor as an investment. After all, why would you invest in gold when you can make money on an interest-bearing investment? Gold doesn’t pay an investor interest. Nor do any of the other precious metals.
Yet gold has been up as much as 7 percent since the Fed’s rate hike on December 14, 2016. Before that, it had taken even professional investors by surprise when it spiked 13 percent in the two months after the last increase in December 2014 and, before then, 6 percent during the previous time in June 2006.
The Trump effect
Much of the explanation for the most recent rise in price can be traced to the unpredictability prompted by the new Administration. Markets react like thoroughbreds to uncertainty. And since Donald Trump was elected last November, uncertainties about his intentions for the nation have exercised a volatile influence on financial markets.
At first, though, precious metals prices slid when Trump promised he’d pump up the U.S. economy by spending on infrastructure. This process would maximize a yield on assets and limit investor interest in gold as a possible haven.
But once he took office, the President focussed on other activities and concerns, and the Fed’s December rate increase marked a support price for gold. Surprisingly, the anticipation of additional rate increases has not yet parked further increases in its price.
Gold ETF piles in
Investors in the biggest gold exchange-traded fund (ETF) have purchased in excess of 40 metric tons just this month, and have helped drive prices to $1,238 an ounce. During the Chinese New Year, gold climbed in January when the Chinese ordinarily buy gold as gifts.
A well-known billionaire ETF manager, Stan Druckenmiller, has already announced he was a gold buyer in December and January because of the confusion surrounding U.S. government policy.
But there are other uncertainties prompting gold purchases – imminent elections in Germany, the Netherlands, as well as the lack of agreement on the terms of Britain’s exit from the European Union.
In France, the leader of the National Front, Marine Le Pen, has intimated she’ll assume control of the central bank, print money to subsidize welfare, and take France off the euro if she wins that country’s presidential election.
The upward-bound price of the yellow metal has stayed the course. Not even the Fed’s plan for higher U.S. interest rates has deterred gold investors who are now concerned that President Trump’s actions could add to government debt. Worries that more countries might depart from the European Union serve only to heighten anxieties – a situation almost certain to benefit gold prices even further.
Concerned about your savings?
The big concern for most of us is how will political events affect our financial future. What about your retirement savings? Are you concerned about how doubts about the U.S. and European economies might cause a precipitous reversal in your stocks? Are you interested in finding out more about how gold can protect your nest egg? Talk to my friends at Fortress Gold. They’re experts in precious metals, the factors that impact them, and the global markets they trade in.
Request more information now or call 800-777-6177 and talk to a Fortress Gold Group representative. Tell them Kelly at SRC sent you by quoting this reference: SRCFG317.