miércoles, 30 de agosto de 2017

miércoles, agosto 30, 2017

Washington holds the key to gold’s fortunes
     
US political developments could herald two very different scenarios for the yellow metal

by: Henry Sanderson
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Investors have historically turned to gold in periods of strife © Bloomberg


Donald Trump’s promise to turbocharge the US economy sent gold tumbling in the weeks after his election. His failure to do so has seen the yellow metal more than recover its losses in 2017.

Now, after touching $1,300 a troy ounce this month for the first time since Mr Trump was elected, investors and analysts say Washington will be central to whether gold can extend the 12 per cent rally it had chalked up this year.

The bearish scenario for gold will unfold if the White House and the Republican-controlled Congress deliver a package of tax cuts that re-animates the struggling dollar and sends expectation for interest rates higher. Gary Cohn, head of the White House national economic council, said on Friday that the administration was pushing for a package of tax cuts to be passed by the end of the year.




It was this prospect that sent gold sliding almost 10 per cent between the US presidential election and the end of the year. Given that the metal offers no yield to investors, it typically fares badly during periods when interest rates are rising.

“Investors came into 2017 expecting a boost from Washington in the form of tax cuts and potentially infrastructure spending — resulting in the so-called ‘reflation’ trade,” Russ Koesterich, a portfolio manager at BlackRock, noted. “Gold’s performance may be most closely linked with what happens in DC.”

However, US politics could yet prove the catalyst for gold to extend a rally few saw coming at the turn of the year. Steven Mnuchin, the US Treasury secretary, has said Congress has until late September to raise the country’s self-imposed debt ceiling. Failure to do so could lead to default, and political wranglings over lifting the limit have already begun.

“We’re in this strange unfamiliar situation: for the most of the last five or six years the geopolitical risk was outside the US and now it’s within the US,” said Mr Koesterich. “If Washington stumbles of if there’s an issue with the debt ceiling that would produce some risk-off and a rally for gold.”

Gold was approaching a record high the last time Congress left global investors on edge by almost failing to raise the debt ceiling in 2011. The prolonged machinations prompted rating agency S&P Global Ratings to strip the US of its AAA credit rating for the first time.

In addition to the debt ceiling, investors say a ratcheting up of global geopolitical risk, principally from the tensions between North Korea and the US, could also propel a metal that investors have historically turned to during periods of strife.

“At this time of heightened geopolitical risk, when Venezuela is on the brink of chaos and tensions are growing between North Korea and the US, there is the possibility of an event in the coming months which causes investors to seek to reduce their risk exposure,” argued James Luke, a fund manager at Schroders.

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