Gold prices up 10% if Trump wins, ETF Securities says

James Butterfill, head of Research & Investment Strategy at ETF Securities, suggested that gold prices would rise as much as 10% over the coming 12 months if Donald Trump is being elected as the next US president.

Butterfill argued that gold is considered a hedge to tackle political uncertainty and that Trump, as president, would bring more unpredictability than any president.

ETF Securities research chief said it would particularly impact the US Federal Reserve’s leadership and monetary policy strategy.

In the event Hillary Clinton wins the race to the White House, Butterfill assessed gold could drop by a maximum of 6%.

“However, both candidates’ commitment to big infrastructure plans will increase the nation’s deficit and increase inflation, which are both positive for gold prices in the long run.

“So we remain bullish on gold into mid-2017 due to continued political uncertainty in Europe, a negative interest-rate environment and over-stretched bond and equity markets will be the main factors to drive prices higher,” he said.

ETF Securities has studied US elections since 1928 and analysed both gold and equities asset classes prior to and a year after each election.

It highlighted that the most marked differences happen when there is a change of political administration, from Republican to Democrat or vice-versa.

Hence when a change of administration occurs, equities tend to be very volatile, falling 6% within a quarter while gold conversely tends to rally by 10% within a year.

In the opposite case, ETF Securities’ research shows that gold tends to sell off by 5% on average whilst equity volatility remains low and increases by 5% within a year.

Also it finds out that when an administration doesn’t change, or there is no change in control of Congress, gold tends to perform poorly.

Butterfill also believes that a Fed rate hike in December will not derail the gold rally “because interest rates are still going to be really low with real interest rates remaining negative.”

“But there could be a dip in the gold market as rate hike expectations weigh on prices, with a rally resuming again in the New Year, with prices expected to rise another 10% to $1,440 by June 2017.”

Adrien Paredes-Vanheule
Adrien Paredes-Vanheule is French-Speaking Europe Correspondent for InvestmentEurope, covering France, Belgium, Geneva and Monaco. Prior to joining InvestmentEurope, he spent almost five years writing for various publications in Monaco, primarily as a criminal and financial court reporter. Before that, he worked for newspapers and radio stations in France, in particular in Lyon.

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