Was The January High In the U.S. Dollar A "Trump Top?"Friday February 10, 2017 11:57
(Kitco News) - Feb. 3 - A bullish brew of fundamentals are simmering in the pot for gold and other precious metals prices this year. Industrial metals have stormed out of the starting gates and are already racing around the track – leading the charge for metals bulls this year, and gold and silver aren't far behind.
|Platinum + 10.83%|
|Palladium + 10.55%|
|Silver + 9.51%;|
|S&P 500 + 2.50%|
|Source: barchart.com, cnnmoney.com through Feb. 3, 2017|
The first and foremost support for the precious metals complex may well come from the new Trump administration that has spearheaded a reversal of a decades long strong dollar policy. Let's take a look at what that means.
Gold investors may well have President Trump to thank for a more sanguine outlook for the metals complex ahead, in relation to the impact from the U.S. dollar.
Rising inflation pressures are another brewing storm that will provide underlying support to the precious metals arena in 2017. There is evidence that inflation pressures are building already. Oil prices have nearly doubled over the past year. Tighter labor markets – in the U.S. and also in Germany are boosting wages, which has a spillover impact on rising prices throughout the economy. Inflation will likely rise faster than policy rates in the U.S., which puts pressure on "real interest rates." Traditionally, gold is an inflation hedge and investors will turn to the yellow metal as inflationary pressures continue to build.
The latest reading from financial markets shows the June Federal Reserve meeting as the next likely time for an interest rate hike. Remember, the benchmark interest rate remains at historically low levels – below 1.00%.
A new swath of conflicting forces could emerge to foil the Fed's hiking plans once again. The central bank has been attempting to "normalize" the Fed funds rate for several years, but issues have kept cropping up that derailed the moves. Could the Trump administration become another factor pressuring the Fed to delay? Interest rate hikes would only act to strengthen the U.S. dollar and that the president already thinks the dollar is too high.
Adding it all up, the gold and metals markets see a positive backdrop for 2017. What's in your portfolio right now?