Gold prices have soared to their highest levels since before Donald Trump won the election as the U.S. dollar weakens and concerns about the strength of the U.S. economy grow. Gold prices are also finding safe haven strength on escalating fears about North Korea and tensions in Asia.
Currently selling for above $1,317 an ounce, gold is now at its highest level since the beginning of November, when the precious metal touched a high of $1,338 on election night when it appeared as though Trump was going to win the election.
After Wall Street digested Trump’s unexpected win, it was decided that the president’s pro-growth, pro-business agenda would be good for both corporate earnings and the world’s largest economy.
Immediately following the election, gold prices tanked, and by the end of 2016 it was trading near $1,150 an ounce. Gold bears believed that Trump’s $500.0-billion infrastructure spending program and tax breaks would lead to strong U.S. economic growth, higher interest rates, and a strong dollar–all of which is bad for gold prices.
It’s been a different story in 2017, though. Gold prices have been rising following a number of missteps in Washington. Since the start of 2017, gold prices have soared nearly 15%.
Trump has been unable to get his infrastructure plans implemented, his repeal of Obamacare was a disaster, and U.S. economic growth has not exactly been robust since he took over the Oval Office.
Moreover, the U.S. dollar has been taking a beating. Since the start of 2017, the U.S. dollar index has lost 10.3% of its value, and at 92.14, is at its lowest levels since May 2016.
Uncertainty about the strength of the U.S. economy and weakness of the greenback is helping prop up gold prices. A major reason for the strength of gold and weakness in the U.S. dollar is the expectations for another rate hike in 2017.
At the central banking symposium in Jackson Hole, Wyoming, Yellen, while upbeat about the U.S. economy and labor markets, gave no hint as to when the Federal Reserve would next raise its key lending rate or about what it was going to do about its $2.5-trillion balance sheet that ballooned during three generous rounds of quantitative easing.
Gold is also gaining strength on the political discord that is growing in Washington. The U.S. dollar has lost ground and gold has gained after President Trump dissolved two of his business advisory councils. This included the American Manufacturing Council, a panel made up of 28 prominent chief executives that advised Trump on domestic manufacturing initiatives.
When Wall Street loses confidence in the president and the U.S. economy, gold benefits.
Political infighting also points to trouble in the White House, which is good for gold prices.
Since President Trump took office in January, Republicans of all stripes have been openly criticizing him. Trump has responded in kind, creating huge opposition to the president and making it virtually impossible for anything to get accomplished.
This all undermines Trump’s promise to kick start the U.S. economy, keep jobs in America, and strengthen the U.S. dollar.
Investors might be pointing to escalating tensions in North Korea and saying it is the root of the strength in gold prices. However, gold prices have been rising for a while now, and there is more than enough going on in Washington to fuel gold’s growth for the remainder of 2017, and perhaps Trump’s presidency.
“Financial Stability a Decade after the Onset of the Crisis,” Board of Governors of the Federal Reserve System, August 25, 2017.