Nervous Investors Send Gold Prices Higher
The gold price forecast for 2017 just got a little more bullish. After falling close to 12% in the weeks following President Trump’s election victory, gold prices have rebounded, up approximately 6.6% since late December to around $1,205 an ounce.
And this could be just the beginning for gold prices, as investors seek safe-haven assets like gold following Trump’s protectionist sentiments expressed during his inauguration speech.
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“From this day forward, it’s going to be only America first. Every decision on trade, on taxes, on immigration, on foreign affairs will be made to benefit American workers and American families… Protection will lead to great prosperity and strength.” (Source: “Read President Trump’s full, blistering inaugural speech, attacking Washington, promising ‘America first’,” CNBC, January 20, 2017.)
Trump’s pledge to put America first was a cornerstone of his campaign promises. So it’s not a huge surprise to see him tackle trade issues in his first week in office. On Monday, January 23, President Trump formally withdrew the U.S. from the Trans-Pacific Partnership (TPP), calling it “great news for American workers.” The TPP is a trade deal with 12 Pacific Rim countries (including Japan, Canada, Australia, and Mexico) that was negotiated by Obama but never ratified. (Source: “Donald Trump Just Pulled the U.S. Out of a Major Trade Deal With Asia,” Fortune, January 23, 2017.)
Donald Trump has also made it clear that he will set up a meeting with Mexican President Enrique Peña Nieto and Canadian Prime Minister Justin Trudeau to renegotiate the North American Free Trade Agreement (NAFTA). In fact, it was widely expected that Trump would sign an order to formally attempt to renegotiate NAFTA on Monday.
NAFTA is a trade deal between the U.S., Mexico, and Canada. By all accounts though, Trump’s main target with NAFTA is Mexico. A Trump advisor said there is a “very low risk” of Canada suffering any “collateral damage” in any NAFTA talks. Trump is, first and foremost, a businessman, and understands that Canada is the largest trading partner for 38 U.S. states. And countries that have a trade deficit with the U.S. will be more of a target. Canada could actually sign a trade deal with the U.S. that excludes Mexico.
Gold Climbs as Markets Stall
Trump’s domestic and foreign policies will be viewed as nationalist or isolationist; either way, it’s making some investors nervous. Aside from promises to hire and buy American, President Trump hasn’t provided very many details on his fiscal policy, tax cuts, and infrastructure spending. This has left investors with a sense of uncertainty.
The Trump bump, which sent stocks to a series of record highs in the weeks immediately following the election, has flatlined, with investors now concerned about how Trump’s economic policies will impact the U.S. economy.
Arizona Senator John McCain criticized Trump on the TPP deal, calling it a serious mistake that will prevent the U.S. from promoting its products. It also creates an opening for China to “rewrite the economic rules of the road.” (Source: “Trump signs executive order withdrawing US from TPP trade deal,” Fox, January 23, 2017.)
Vermont Senator Bernie Sanders on the other hand, said, “I am glad the Trans-Pacific Partnership is dead and gone. For the last 30 years, we have had a series of trade deals which have cost us millions of decent-paying jobs and caused a ‘race to the bottom,’ which has lowered wages for American workers.”
There’s a caveat to Trump’s America First mandate, and if American CEOs don’t play by the rules, it could end up hurting their already fragile bottom line. Trump has said he plans to cut regulations by 75% or more but warned that any company that doesn’t bring jobs back and import goods to the U.S. will suffer a “very major border tax.”
Again, whether this will be implemented or not is up in the air and will cause more concern for both Wall Street and investors.
Gold Price Forecast 2017
Until President Trump provides an in-depth understanding on his economic policies and how America First will impact the U.S. economy (i.e. upcoming earnings seasons), stocks will continue to waver and nervous investors will continue to flock back to gold.
What is the gold price forecast for 2017? Before the election, many had pegged gold hitting $890.00 by the middle of 2017. Now that Donald Trump is officially President of the world’s biggest economy, some gold bulls see bullion prices hitting a high of $1,900 by year-end.
What could propel gold prices approximately 60% from today’s level? Aside from uncertainty about President Trump’s trade policies, there are growing concerns about the health of the U.S. economy. If corporate earnings do not rebound quickly, impatient investors will shun stocks and turn to gold.
If the economy remains stagnant and the Fed holds off on interest rate hikes, investors here and around the world (who are also tired of record low global interest rates) will turn to gold as a store of value. It doesn’t cost anything to store gold. Money on the other hand…
Gold prices nearing $1,900 an ounce in 2017 is not as implausible as it might have sounded just a few months ago.
