The price of gold is moving in contradiction to its economic purpose, which is to serve as an investor safe haven against inflation. Shortly after the election, the dollar index spiked as gold prices began a quick decline; however, recently the trend has reversed. Gold is now up around 7% since the Fed’s December rate hike, according to Bloomberg.
Last week we saw the Consumer Price Index report showing inflation above 2% and Janet Yellen’s congressional testimony sending firms like Goldman Sachs increasing the odds of a March hike to 30%. With stronger assurance and signals of higher interest rates and rising inflation, why is gold rising and the dollar falling? Here are 3 critical factors:
Uncertainties surrounding the stability of his administration, the priority of his policies, and responses by other world leaders are keeping investors skeptical of what Trump-o-nomics will look like. The rallies in the dollar and the stock market began quickly after the election results. Investors were looking to campaign promises of fiscal spending and deregulation that would free up more capital investment into construction projects like the border wall. Since then Trump’s focus has been diverted to national security matters, and investors haven’t yet seen the earnestness, political will or Republican support to push through spending increases.
This post was published at Schiffgold on FEBRUARY 21, 2017.