Concerns Over Trump Drive Gold On Renewed Safe-Haven Demand
As gold prices continued to rise during the Asian session on Wednesday, one commodity strategist said he sees a growing demand for the yellow metal due to its safe-haven appeal in light of rising concerns over the U.S. President Donald Trump.
“Gold is being driven by rejuvenation of safe-haven buying that we saw earlier this year, as the issues with President Donald Trump are playing out again,” Daniel Hynes, ANZ senior commodity strategist, told Kitco News in a telephone interview.
Renewed interest in gold came after media reports revealed that Trump asked then-FBI Director James Comey to put an end to an investigation into his former security adviser Michael Flynn and Russia.
Following the news, the U.S. dollar fell further, supporting the yellow metal. The dollar's index, which is measured against a basket of six major currencies, was down to 98.05.
The biggest issues the media reports raised were potential charges of obstruction of justice that can be brought against Trump as well as loss of confidence in Trump’s abilities to implement his promised stimulus package.
“The market is uncertain whether Trump will be able to carry out his plans in terms of tax cuts and other campaign promises,” Hynes said.
Additional support for gold comes as markets are still digesting Trump's decision to fire Comey last week and sharing classified national security information about Islamic State with Russian Foreign Minister Sergei Lavrov.
“The firing of FBI chief James Comey definitely played a role for gold. But, that, in isolation didn’t provide particular support. Instead, it added to the general concern the market has with the presidency,” Hynes explained. “Risks of broken policy are increasing safe-haven buying. This is a key driver of higher gold prices.”
Tensions over North Korea also add to the picture, Hynes said. In the latest developments, South Korea's Defense Minister Han Min-koo said on Tuesday that North Korea's missile program is moving along faster than expected. The minister added that the missile test was recognized by the controversial U.S. THAAD anti-missile system.
It will be difficult for gold to move significantly higher ahead of the expected Federal Reserve rate hike in June, Hynes said. But, he noted signs of strength in critical demand, particularly from India, which could add another level of support for gold.
In fact, the latest data from the country’s Commerce and Industry Ministry revealed that India’s gold imports jumped three-fold to $3.85 billion in April on an annual basis, mainly driven by Akshaya Tritiya festival, known for gold buying.
Overall, Hynes shared a positive outlook for gold, noting that the $1,300 level is within reach in the second half of the year, depending on the pace of rate hikes.
The commodity strategist is projecting two more Fed rate hikes this year. “Gold might see some weakness, but recently we’ve seen gold rally post-hikes due to a cautionary Fed and we are estimating a similar path for the next hike in June,” Hynes said.