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The impact of geopolitical factors, including the US election result, could soon drive prices higher, according to Martin Murenbeeld of Dundee Economics.
The impact of geopolitical factors, including the US election result, could soon drive the price of gold higher, according to Martin Murenbeeld, the Vancouver Island-based gold watcher and Chief Economist at Dundee Economics, a division of Toronto-based investment firm Dundee Corp.
The price of gold is under pressure this week as a firm US dollar, rising bond yields and expectations of an interest rate hike continue to weigh on the yellow metal.
Markets are gearing up for a planned speech by US Federal Reserve Chairman Janet Yellen in Jackson Hole, Wyoming, on August 26, 2016. The hope is that Yellen will offer more insight into the Fed’s monetary policy, and specifically if and when a rate hike might be coming.
But Murenbeeld is taking the view that any rate hike will be a non-event for gold.
“The Fed will or won’t raise interest rates by all of 25 basis points which is absolutely nothing,” he said. “The only impact of raising will be a little bit of a shock in the market. But I think people will realize that it’s an inconsequential matter.”
So he says the best hope for a near term rally could lie in the US election.
“I don’t see markets liking either one of the two candidates,” Murenbeeld says.
However, the Dundee economist believes a victory for Donald Trump would be more positive for gold because he will directly or indirectly wish to devalue the US dollar. “This will be done through threats and discussions with China,” he said.
But for similar reasons, Murenbeeld believes a win for Hilary Clinton could also be positive for gold because she will also take the view that if her Administration wants to get more pep out of the US economy, the US dollar ought to be lower.
“The market will take a rather dim view of her “Saunderish” social democracy-type policies and that will tend to undermine the dollar a little bit,” Murenbeeld said.
The last significant spike in the price of gold followed news in late June 2016 that the United Kingdom had voted to leave the European Union. Gold jumped from US$1,268.60 an ounce on June 22 to US$1,374.74 on July 10.
Dundee’s weekly tracking models suggest that gold is trading where it should be right now, at between US$1,325 and US$1,375. Murenbeeld has previously predicted that gold should trade at an average of US$1,425 an ounce in the fourth quarter of 2016. He sees no reason right now to change that view.
Securities Disclosure: I, Peter Kennedy, hold no direct investment interest in any company mentioned in this article.
