Gold well-supported on safe-haven flows, lagging dollar

  • Increasing political and economic uncertainties under the new Trump Administration, coupled with a sliding US dollar since the beginning of the year, have led to a sharp rise in gold prices for more than a month.
  • Since late December, gold has risen from its long-term lows around $1125 up to its current position in the mid-$1230’s.
  • Demand for the perceived safety of gold has risen significantly as US President Trump’s trade and foreign relations agendas have been met with substantial opposition, confusion, and overall concern.
  • Worries have also arisen with regard to Trump’s ability to push forward his promised fiscal stimulus plans in a timely manner.
  • Trump and some of his key advisors have recently stated that the US dollar is too strong, while also attacking other countries for allegedly keeping their currencies weak in order to gain an advantage in trade, including Germany, China, and Japan.
  • These concerns have simultaneously helped pressure the US dollar while boosting dollar-denominated gold.
  • Last week’s mixed US jobs report showed a much better-than-expected number of jobs added in January, but lower-than-expected wage growth, a key measure of inflation. This data lowered expectations of a near-term interest rate hike by the Federal Reserve, thereby further supporting short-term demand for non-interest-bearing gold.
  • Going forward, uncertainties boosting safe-haven flows are likely to increase further as the Trump Administration extends its hardline protectionist stance, and as Europe faces mounting political risks.
  • From a price perspective, gold continues to climb towards major resistance around the $1250 price level. This level is also the 50% retracement of the sharp downtrend from July to December of last year. Technically, much will depend on how the price of gold reacts around that key level. A major, sustained breakout above $1250 could signal heightened risk aversion in the markets, potentially opening the way towards a short-term $1300 resistance target.

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