Gold edged higher on Tuesday, snapping a three-session losing streak, on uncertainty over the economic policies of U.S. President-elect Donald Trump.
Trump has vowed to boost domestic spending, which has the potential to stoke inflation and dent demand for non-yielding bullion, but the market is seeking more details on his policies.
"There have been lots of statements of U.S. policy, but we don't have details and we don't know what it looks like. That's fertile ground for gold," ETF Securities commodities strategist Martin Arnold said.
Generally, investors pile into safe-haven assets such as gold in times of political and economic uncertainty.
Gold is “down but not out,” says TD Securities. After an initial spike higher a week ago when it became apparent Donald Trump would be the next U.S. president, the precious metal has since turned lower. Prices fell as the market factored in ideas that U.S. fiscal stimulus will lift inflation expectations, move yields higher and boost the dollar. “Higher yields along with a sharply higher USD are usually a very poisonous environment for gold,” TDS says, saying the metal could drop below $1,200 an ounce as the Federal Reserve prepares to hike interest rates. However, “while there are big downside risks for now, the future looks better for gold,” TDS says. The Fed likely will be “measured” when it tightens monetary policy, looking to “normalize rather than be restrictive.” Thus real interest rates – adjusted for inflation – may remain negative on the front end of the yield curve, TDS says. Trump’s proposed tax cuts and spending hikes are expected to boost the U.S. deficit, TDS continues. “Of course any talk about lifting inflation targets coming from the Fed, the pending Italian Constitutional vote and several European elections, which could raise questions surrounding the viability of the EU (European Union), are all reasons that gold is down but not out.”
Reference: Kitco, Reuters
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