The Pietra Sussan Company
25/04/2017
Donald Trump’s presidency continues to influence the gold price and provide something of an argument in favour of gold investment, as his constantly erratic and unpredictable government’s recent movements on the world stage stoke further tensions with various international players.
The price of investment gold climbed sharply to a high of more than £1,020 an ounce in the UK following a surprise cruise missile strike by the US military against a Syrian Arab Republic base on the 7th of April.
The airstrike, a high-profile strike against a Syrian airbase following a widely-publicised chemical attack against civilians and rebels by the Syrian army, was the catalyst for an immediate and sharp loss of confidence in the stock market. Concerns included potential confrontations between the US and Russia, a major ally of the Syrian government, as well as further fears about Donald Trump’s unpredictability. The strike was followed by the highly-publicised use of a ‘MOAB’ in a massive airstrike in Afghanistan – a move which received a huge media response and boosted Trump’s poll numbers, while also adding to his unpredictable image.
At roughly the same time, the US gold market peaked even higher at $1270 an ounce as reports came in that job growth under the first months of the new Presidency was significantly weaker than expected, adding just 98,000 jobs in March (far less than the expected 180,000).
Shortly afterwards on the 17th, a war of words erupted between the US and North Korea, both sides threatening use of nuclear weapons around North Korea’s annual independence celebrations. While the conflict has now simmered down into little more than a diplomatic row, tensions in the region remain high.
The market response
Markets often respond to sudden acts of war by major superpowers by rapidly shifting, with quick investors fleeing to “safe assets”: gold, oil and bonds, as well as safe currencies like the Japanese Yen. The responses to the recent incidents were no different – despite the relative military insignificance of the attacks, the gold price climbed following each.
The spike was relatively short, however, as the US confirmed it would not be conducting follow-up strikes, and the immediate threat of direct conflict between US and Russian/Syrian forces faded, the markets began to settle again, with gold down to a steady £1,013 per ounce by the close of trading, and a slight fall on Monday morning.
Nonetheless, gold remains at a higher level than before and continues to climb as global tensions tighten. A similar spike was seen on the 3rd-5th of April 2017 during the public spat about Anglo-Spanish relations and Gibraltar in the British press.
Job numbers
However, numbers of new jobs are much more likely to have a long-term effect on the gold market. The US and British economies aren’t completely in sync but what affects one tends to affect the other, and nerves among US investors have a knock-on effect.
As some commentators have noted, while the unemployment rate in the US is now below its pre-recession rate of 4.5%, the shortfalls in the US job gains rate remain concerning, especially as one of the key aspects of President Trump’s promises was job creation. If he’s unable to deliver, the market and his supporters could shift against him.
A good time to invest in physical gold
Following the first round of results in the French elections and the favourable moves from the US Federal Reserve, the gold prices have fallen somewhat on both sides of the Atlantic. Don’t be discouraged – this volatility is what makes investment in physical gold an excellent way to remove one’s finances from the unstable marketplaces of stocks and shares. If the gold markets are volatile, the other markets will be unsustainably so.
On top of this, an interest rate hike has been priced into the U.S. market for June, strengthening the dollar and reducing the value of gold, making purchasing for investment more attractive. The last three times the U.S. have increased interest rates gold has fallen in value, quickly followed by an increase of 7-8%.
As the recent Bank of England/Libor scandal proves, even central banks are no longer a reliable store of wealth. The fact that a single air strike that destroys some elderly fighters and lightly damages a third-world military base can have such an impact on the markets should be proof that stable investments such a gold are desirable in these times.
