No fireworks in gold

DONALD Trump won the US election, but it failed to fire gold in the way most thought it would.
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Kristie Batten

As a Trump victory became more plausible yesterday, gold started to surge, jumping as high as $US1340 an ounce.

Dow Jones futures plunged and it was looking like it would be a market wipeout.

OceanaGold Corporation CEO Mick Wilkes said yesterday that some of Trump’s statements had gotten markets worried.

“As he’s said, it’s Brexit times three and that’s a worry – I think it’s the wrong direction,” he said on the sidelines of IMARC in Melbourne yesterday.

“It’s the only good thing about being a gold miner – when everything turns to mush, we do alright.”

But much to everyone’s surprise, everything didn’t turn to mush, partially thanks to Trump’s measured victory speech.

Gold retreated to $US1276 an ounce and the Dow rose by 1.4%.

Thomson Reuters GFMS noted that the initial panic happened during Asian trade and was a classic knee-jerk reaction to a major event.

GFMS speculated in recent weeks that gold could move to $1500/oz on a Trump victory.

Despite the drop in gold, it said significant uncertainty remained.

“Certainly President-elect Trump appeared to adopt a more conciliatory tone in his initial remarks than in the oh-so-combative presidential election campaign, but the markets will need more guidance before they can settle,” GFMS said.

“In the short term, therefore, further volatility and risk-off activity could easily prompt further gains in the gold price, while for the longer term the picture is more hazy, but points overall to further bullish action.

“This though is more likely to be on the basis of bargain hunting into dips rather than a headlong pursuit of higher prices.”

The World Gold Council this week reported that investment in exchange-traded funds continued to grow during the September quarter and British consultancy Metals Focus said it expected Trump’s victory to encourage further inflows into gold for the foreseeable future.

“However, we think it is unlikely to be a game-changer,” it said.

Metals Focus maintained its gold price forecasts of $1350/oz at year-end (with modest upside), peaking at $1460/oz next year.

“The uncertainty the new president-elect introduces to domestic, foreign and trade policy of the world’s largest economy and military power should continue to encourage interest in safe haven assets,” it said.

“Importantly, we believe that if these culminate in renewed turmoil in global markets, for instance a severe correction in equity prices, the Fed would be forced to respond.

“This could mean any further rate hikes are placed on hold or that a new loosening cycle begins, involving rate cuts and/or a new round of quantitative easing.”

Macquarie reiterated that quality would win in times of uncertainty.

It continues to favour Evolution Mining, St Barbara and Northern Star Resources.  

“We remain of the view that longer-term investors should continue to focus on high-quality domestic producers, whilst those looking for more leverage should favour the West African producers and development plays,” Macquarie said.