The spot price of gold increased by 0.3 percent to $1,231.40 per ounce; however, the overall trend is downward, and the reasons for this are hard to pinpoint. In Europe, the economic situation in central and eastern Europe worsens as lower levels of EU aid result in slowed third quarter growth, while western Europe and the United States enjoy positive economic data. The prospect of a Trump presidency promises to bring inflation, and possible dollar weakness - but this thesis is not resulting in a gold rally.
In Asia, the Chinese Yuan is at its weakest point in years. Much of this decline is due to Trump’s protectionist rhetoric during his campaign. The U.S president elect has often criticized China for artificially manipulating its currency (downward), and has threatened to push back with tariffs. At first glance, the Yuan crash seems like a good thing for China – a cheaper currency means more exports. However, Chinese citizens do not like seeing their purchasing power evaporate; this could lead to money leaving the country, being converted to Dollars or Euros or being used to buy physical gold.
Top Development: Trump, Inflation & Interest Rates
Trump has proposed spending up to $1 trillion over the coming decade on infrastructure. Heavy government spending is good for commodities - which tend to move in tandem - and bearish for the Dollar because of inflation risk. However, the U.S Federal Reserve interest rate decision still looms over the horizon.
While inflation is bullish for gold and commodities, it also incentivizes the Fed to raise rates – bearish for gold. Most analysts still expect a rate hike before the end of 2016. Now that the U.S election is over, and the markets seem calm, higher rates are more probable.
