With a ton of pundits certain that gold was set to boom in the event of a Donald Trump election victory, the opposite has proven true. Gold is at a near six-month low at $1,230 an ounce as investment flows out of gold-focused exchange-traded funds (ETFs) and gold futures.
It seems that—despite the much-touted instability of Donald Trump—the market has reacted favorably to his win. The dollar has strengthened, signalling projections of a strong U.S. economy. BMI Research cut its average-price forecast for 2017 to $1,300 an ounce from the previous $1,400. (Source: “Trump and Modi Take Shine Off Gold,” The Wall Street Journal, November 16, 2016.)
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India under Prime Minsiter Narendra Modi isn’t exactly helping gold either. Their recent demonetization policy coming into effect has caused many to be stuck in a cash-crunch as the masses rush to get their soon-to-be-voided currency exchanged for the new bills. For an economy largely dependent on cash, this has stalled many purchases in India. Couple this with the approaching Indian wedding season, which is known for driving gold prices, and you have a perfect storm for downward-trending gold prices.
The Indian government is also rumored to be considering a ban on gold imports to prevent last-minute conversions of illegal cash stashes before the old bills are voided on December 30.
This year hasn’t been particularly good for gold in India. Gold imports for the first three quarters of 2016 were off by an estimated 50% compared to a year earlier, partly due to a one-percent excise tax on manufactured gold products.
That doesn’t mean gold is doomed, of course. Trump has only been president-elect for over a week, not to mention he won’t begin actually running the country until January 20. And it’s not as if the man is known for his calm and reserved demeanor.
Gold enthusiasts would be well-served to keep an eye on the price, but try to avoid being swept up in hype one way or the other. As for now, it seems that gold will spend some time on the decline, at least for the immediate future.
