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Gold rallies as Trump’s quagmire batters dollar to November low

Bullion rises for fifth day in longest winning run since April.

Gold’s getting a boost from the turmoil in Donald Trump’s West Wing. The haven rose for a fifth day as the president’s latest controversy prompted references to the 1970s Watergate scandal that helped to sink predecessor Richard Nixon, hurting the dollar as investors cut back on risk.

Bullion for immediate delivery climbed as much as 0.6% to $1 245.07 an ounce, the highest since May 3, and was at $1 243.82 at 8:08am in London, according to Bloomberg generic pricing, as the Bloomberg Dollar Spot Index sank to the lowest since November. The precious metal’s winning run is the longest such stretch in a month, and takes gains this year to 8.4%.

Gold has risen after Trump’s firing of FBI director James Comey a week ago, as well as reports he shared intelligence with Russia. In the latest twist, Trump is said to have asked Comey in February to drop an investigation into a former national security adviser, raising questions that he may have obstructed justice. The problems are seen as drawing the administration’s focus away from policies to aid growth, and have spurred recollections of former President Nixon, who was ensnared in Watergate and resigned.

“The rise in gold is largely a dollar play, with the dollar weakening because of Trump,” said Barnabas Gan, an economist at Oversea-Chinese Banking Corporation, who also flagged overseas tensions. “There’s still more downside risk to gold in the long run, but in the short-term, given what the North Koreans are doing and what Trump is doing, the dollar is inherently weak.”

Democrats say reports Trump asked Comey to drop the investigation into Michael Flynn amount to obstruction of justice, if true. “I hope you can let this go,” Trump told the FBI director, according to a Comey memo, as cited by the New York Times. The White House has denied that version of events. 

‘A distraction’

The concerns surrounding the White House may slow economic policy decisions, according to Westpac Banking Corporation, which recommends investors short the dollar. “Regardless of the ultimate conclusion of the political storm over Trump’s actions on Russia and the security services, it will at the very least linger as a distraction that makes it more difficult for the White House to pass pro-growth policies,” said Sean Callow, a senior currency strategist.

Bullion has advanced in 2017 — posting a run of four monthly gains through April — even as the Federal Reserve tightens monetary policy, with a rate rise in March and more increases likely to follow. Higher rates tend to curb the appeal of non-interest-bearing assets like gold.

While this year is a “pretty hazy year for bullion, the path of least resistance is on the bearish side,” said Singapore-based Gan, highlighting the Fed’s tightening cycle. “If we divorce away all the uncertainty, the rate-hike story should at least bring gold prices to $1 100.”

In China:

Bullion of 99.99% purity advanced 0.4% to 277.80 yuan a gram ($1 255 an ounce) on the Shanghai Gold Exchange. On the Shanghai Futures Exchange, gold for December delivery added 0.4% to 281.05 yuan a gram, while silver rose 0.2% to 4 120 yuan a kilogram.

In other precious metals:  

Spot silver rose as much as 0.5% to $16.9431 an ounce, the highest level since May 2. Palladium was flat at $795.88 an ounce, while platinum was also little changed. 

© 2017 Bloomberg

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Charl Botha

Charl Botha

Futurewealth
Moneyweb Click an Advisor
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