Gold Bid Amid Political Uncertainty And Inflation Expectations
Axi | Feb 10, 2017 11:08
Originally published by AxiTrader
Gold is up more than $120 from its December low at $1120, and continues to post fresh highs. What has been keeping the precious metal in demand, and will it continue to rise?
There are two major factors which are currently driving gold prices higher.
Inflation expectations. While Trump has yet to deliver the details for his economic plan, investors are still confident that he will realize his plans. The US President has promised, among others, big tax cuts and significant infrastructure spending. All that would boost the economy and eventually lead to an increase in inflation. Meanwhile, the Trump-rally is still very much alive and not showing any signs of exhaustion.
S&P 500 - Daily-Chart - 09.02.2017
Concerns about rising inflation generally leads to higher demand in Gold. Inflation has not been something investors had to worry about in the last ten years or so, but it is making a comeback now. The United States will likely be the first major economy affected by this. However, if Euro Zone inflation continues to rise and the political situation stabilizes, it could become a topic for European investors as well.
Uncertainty. Gold is also seen as safe haven during times of instability. While investors are hopeful about Trump’s announced economic measures, there is still plenty of uncertainty what his presidency will bring. Further, there are the confrontations Trump already had during his first twenty days in the oval office. The President and his advisors openly accused some of the US’ major trading partners for manipulating their currency and also imposed new sanctions on Iran.
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Aside from Trump, there is also plenty to worry about in Europe. The upcoming elections in France, Germany and the Netherlands have the potential to rattle the markets. It is especially the election in France that is being closely followed. If the leader of the Front National – Marine Le Pen – continues to advance, it could put a lot of pressure on the euro, European stock markets and increase the demand for safe havens.
From a technical perspective, Gold looks bullish. It cleared the $1220 obstacle without much difficulties and is currently on its way to test the key $1250 resistance level. A break above would then pave the way for an extension of the rally towards $1300. To the downside, strong demand can be expected in the former resistance area of $1220-25, followed by $1200.
XAU/USD - H4-Chart - 09.02.2017
XAU/USD - Daily-Chart - 09.02.2017
Overall, it seems likely that Gold will remain bid and extend gains from here. The cautious sentiment in markets and focus on politics will continue to benefit the precious metal. Techs are also looking positive and point to further gains towards $1300.
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