Could President Elect Donald Trump be Gold's Best Friend?

Could Trump Be Gold’s Best Friend Next Week?
By Neils Christensen of Kitco News
Friday January 13, 2017 13:30

(Kitco News) - Gold could continue to perform well in next week’s shorted trading week as the “Trump effect” loses momentum ahead of President-elect Donald Trump’s inauguration Friday, according to some analysts.
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Gold is preparing to end its third consecutive week of positive gains as the market was driven to a seven-week high, after investors were disappointed that Trump, in his first press conference since his election win, didn’t provide any new information on his economic and fiscal proposals.
February gold futures last traded at $1,195.80 an ounce, up almost 2% since the end of the previous week. Gold is up almost 5.5% since the start of the year.
Silver is also ending its third straight week of positive gains, last trading at $16.775 an ounce, up 1.5% since last week, and up more than 6% since the start of the year.
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“Trump is turning out to be gold’s best friend,” said Ole Hansen, head of commodity strategy at Saxo Bank. “We just don’t know anything about his presidency and that uncertainty is playing into gold’s hands.”
Darin Newsom, senior analyst at Telvent DTN, is also looking for political uncertainty to support gold in the near term as there are still three weeks to go before the next Federal Reserve monetary policy meeting, which is gold’s ultimate driver. He said that in the near-term he could see gold trading between $1,221 an ounce and $1,251 an ounce.
However, with the inauguration not until Friday, some analysts are still watching the U.S. dollar and treasury yields and think that positive economic data could help the greenback and hurt gold.
“Trump or no Trump, the U.S. economy is on solid footing and that will continue to be supportive for the U.S. dollar and push treasury yields higher, said Nick Exarhos, senior economist at CIBC World Markets.
Exarhos added that he will be watching December’s Consumer Price Index, to be released Wednesday. A strong inflation reading could support the Federal Reserve’s outlook for three rate hikes, which would be negative for gold, he said.
Levels To Watch
While gold is starting 2017 on a positive note, analysts note that there is still some work to be done to attract new buyers to the marketplace.
Bill Baruch, senior market analyst at iiTrader said that rising open interest and a massive amount of in-the-money call options in the gold market, could lead to some profit taking in the near-term. He added that he wouldn’t be surprised to see gold take a breather after the last three weeks of gains.
He said that he could see gold test support at $1,175 and a break of that level could lead to a test of $1.165;
“I think any drop in price, would lead to a good entry point to take advantage of a further rally in February,” he said.
Joshua Mahony, market analyst at IG, said that he is watching the $1,177 an ounce level as a drop below this level could increase bearish momentum. He added that he will be neutral on gold unless prices break $1,207.
“Until then, it may be prudent to be thankful for the gains we have seen already over the week and wait for confirmation that $1200 has truly been overcome,” he said.
Hansen added that while short-covering is helping to support prices in the near-term, prices need to push above $1,205 to attract real buyers.
The Final Say
The docket for U.S. economic data, will be a little fuller next week with the main focus on December’s inflation report. However, markets will also receive regional manufacturing data for January. Markets will also receive some U.S. housing data for December.
Central Banks Back From Holidays
While markets have to wait until Feb. 1 for the next Federal Reserve monetary policy announcement, two major central banks will be meeting next week: the Bank of Canada and the European Central Bank.
The ECB carries a little bit more weight because the euro is heavily weighted in the U.S. dollar index, which would have an impact on gold prices. Markets are expecting that ECB President Mario Draghi will strike a dovish tone, which could be euro negative, and in turn weigh on gold.