Gold/AUD Taps All-Time-High on Looming Inauguration

Gold prices are at the focus of considerable attention, with market analysts pointing to strong upside potential after key political and economic events. The inauguration of President Trump and further uncertainty over monetary policy have pushed many investors to increase their exposure to safe-haven assets, with gold at the forefront. Gold is benefiting from a unique mix of factors.

Political changes are usually a cause for turbulence in the financial markets, and precious metals generally do well when uncertainty is higher. While risk-driven traders might favour equities, long-term investors usually add gold to their portfolios to hedge against increased political risk. In this specific situation, the world is facing the prospect of rapid-fire, surprise announcements posted on social media by the incoming president. What happened over the weekend with the launch of his own cryptocurrency, which rose from zero to number 15 in market cap, is a clear sign that he may be even more unpredictable than last time.

The U.S. Federal Reserve and other central banks have to balance their rate decisions with continuous inflationary pressures. Adding to the lustre of gold, the expectations of more measured rates or even rate cuts continue to bolster its attractiveness. As has often happened in history, the interest rate is supportive of the gold price once the opportunity cost of holding a no-yielding asset becomes lower.

Gold remains an extremely strong "crisis commodity." With some question marks over global economic growth, and geopolitical tension, investors have been looking for stability in case of market volatility. The continuing demand for gold-backed exchange-traded funds and robust central bank buying underlined its safe-haven appeal.

While there may be some near-term fluctuations, many analysts say the long-term trend for gold remains bullish. Technical indicators all point to the recent dips offering buying opportunities on price reclamation and possible breakouts above important psychological levels in the upcoming months. Investors will be looking at economic data releases like employment figures, inflation metrics, and central bank policy announcements for further direction.

One of the only factors working against gold is the Fed's change of mood on cutting rates after the presidential election. In the short term, this can cause resistance. In the longer term, anyone who has studied debt-based fiat currency knows that the show must go on and more money must be created.

Watch the Ainslie Insights video discussion of this article here: https://www.youtube.com/watch?v=21nc7OKYOJM