The UK Brexit vote and the US presidential election combined to make 2016 a year in which investors are flocking to traditional assets as safe havens. As the global stage is awash with economic uncertainty, gold has been a primary asset trusted as a safe haven, driving prices and interest up for the larger part of 2016. Since the Trump victory, gold has seen something of a downturn and last week the UK announced its second estimate on the third quarter GDP.
The first figure to cover the full three month time period since the country elected to leave the EU, the UK confirmed its economy grew 0.5% in the third quarter. This amid fears of a collapse signify good news for the country, whose economy may remain unstable until the actual exit strategy becomes a reality. Household spending increased, which has contributed to the unexpected growth.
Given that the UK’s figures actually remained unchanged since the October estimate, the pound dropped, albeit a minimal 0.1 per cent lower than the dollar at $1.2438. The dollar has given an impressive performance in recent weeks, and this strength contributed to the impact on gold. Interestingly, since gold is priced in dollar, its popularity in adversity contributed to the strengthening of the dollar.
Widely considered a safe haven asset investment, gold investment always rises during periods of turbulence in finances. As such, prices rose sharply during the third quarter, driven by both the EU referendum and US election. With an average of $1,335 per ounce in the third quarter, the price of gold was 23% higher than the beginning of 2016. However, as we settle into quarter 4, gold has taken a bit if a panning. For weeks following trump’s election, gold has been spiraling downwards, as many invest in shares. Friday’s GDP announcement was no exception and saw the price of yellow metal hit a nine month low, due to the strength of the dollar.
Falling around 2.5 per cent last week, gold has dropped an impactful 7.6 per cent following the US election result, so its decline is associated with wider economic factors, partially derived from its own success at pushing the dollar up.
What’s next for gold?
For it to make an impressive comeback now, gold would need to print a higher high than its recent swing point of $1337/8, which is quite a tall order, given the rising dollar and lasting global economic fluctuation. Essentially, despite a small bounce, gold’s path for the meantime remains uncertain at best, and likely to continue down.
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