Gold futures swung on Wednesday morning, at first they were down in anticipation of Donald Trump’s first conference as President-elect, then later they edged positive as his speech concluded.
Gold has suffered since Trump won the election on the expectation that his administration would embark on economic stimulus programs that would further boost the US economy and dampen investors’ needs for safe haven investments. Shortly after Trump was elected, the Federal Reserve increased interest rates and indicated a more aggressive stance on monetary policy in 2017.
On Wednesday, traders were looking for more clarity into Trump’s economic plans. If Trump moves to boost the economy it will give the US Federal Reserve more reason to accelerate rate hikes and that will also pressure the yellow metal. Higher interest rates are a negative for gold because they make the commodity compete with yield-baring assets for investors’ interest. On the other hand, if inflation starts to accelerate gold could garner some interest as a hedge against inflation.
The Federal Reserve’s meeting minutes for December indicated members were uncertain about Trump’s plans for economic stimulus; therefore, more clarity is desired. Not only would economic stimulus reduce the need for safe haven investments, it would likely also boost the value of the US dollar and that would pressure dollar-denominated gold. The US dollar has recently been trading around a 14-year high versus a basket of rival currencies. The ICE US Dollar Index was pretty steady on Wednesday. It was last up 0.42%. Before Trump took the stage, it was up 0.5%.
Gold futures were recently up 0.5% at $52.28. The metal is pulling back from a six-week high reached Tuesday.