Russel Chesler

The gold price has surged back above US$1,200 per ounce as investors have poured back into the safe haven asset to protect themselves against uncertainty from Trump’s failure to provide clear details on how he plans to make America great again, according to Russel Chesler, Director, Investments & Portfolio Strategy, VanEck Australia.

Gold ended 2016 at US$1,146 and has since risen above US$1,200 per ounce. Gold mining stocks, which provide leverage to the gold price, have enjoyed a surge in January with the VanEck Vectors Gold Miners ETF (ASX code: GDX) gaining 8.79% for the month.

“Prior to Trump being sworn in the market had ridden a wave of euphoria. Equity markets were focusing on Trump’s planned stimulus however his proposal to have Mexico ‘pay’ for the wall via a tax on Mexican imports and the implementation of his immigration policy have caused markets to reassess what a Trump presidency may actually mean,” Mr Chesler said.

“So far Trump’s policies have caused uncertainty. The question now is will the current gold run last?” Mr Chesler said. According to Chesler, gold is not just responding to political uncertainty but also due to fears of inflation. “Gold has traditionally been used by investors as a hedge against rising inflation and fiscal stimulus could support the rise of inflation in the US. Infrastructure spending, tax cuts and deregulation could still occur with Republicans in control of the White House and both houses of Congress. All of these policies could encourage spending and put pressure on prices,” Mr Chesler said.

“Furthermore if you look back historically since Nixon abandoned the gold standard in 1971, there have been seven new US presidents inaugurated to the White House prior to Trump. In the year following each of those inaugurations gold has outperformed equities five out of seven times.

“With rising inflationary pressures and significant concern regarding the stability of Trump’s leadership, gold is well positioned to rally in 2017,” Mr Chesler said.

Australian investors can access global gold miners by investing in GDX which is the world’s largest ETF of its kind and gives investors instant access to a diversified gold portfolio in a single trade on ASX.

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