Gold is gaining momentum as the new year continues, which was necessary after the dips during the U.S. presidential election.
The precious metal kept dropping in price after Donald Trump was elected president. It also issued an upturn on the dollar, stocks, and financial assets deemed risky. The Federal Reserve made a decision to elevate interest rates back in December, bringing gold prices down. Officials at Central-Bank say that they might also raise the rates three more times in 2017.
Even with the potential rate increases, gold looks as if it’s going to make a comeback. The price of gold is at a 2-month high as of Tuesday, being at its highest trading level since Nov. 17.
On Friday, futures deliveries for February closed at $1,204.90 an ounce, up 0.7% for the week in its fourth week of gains.
Comments from Trump support gold after he told The Wall Street Journal that the dollar is “too strong.”
A strong dollar has hurt gold prices in the past couple months. The value of gold is in dollars and becomes more expensive to foreigners as the U.S. currency rises.
The investor enthusiasm that pushed stocks up on hopes for economic growth has tempered in the new year. The metal is often a haven asset by investors and is in high demand in times of uncertainty and risk-off sentiment.
The rally that took the Dow Jones Industrial Average within points of 20,000 in the past month has stalled. The Standard & Poor’s 500 index has been moving sideways in recent weeks and has traded 67 days without closing more than 1% lower. Meanwhile, gold has gotten a boost from bargain hunters in the new year. Asset allocators have had renewed interest in the metal, driving total positions higher.
In a Friday report, Merrill Lynch with Bank of America said precious metals saw the first inflows in 10 weeks from private clients, of $1.3 billion, the largest weekly amount in five months. However, the SPDR Gold Trust exchange-traded fund has risen 5% this year.
With the prospect of higher rates on gold, some investors are doubtful of the Fed’s ability to carry through with its plans to raise short-term interest rates, especially in the face of political uncertainty.
Head of commodities research at TD Securities, Bart Melek, says doubts over U.S. growth prospects could slow the pace of rate hikes this year: “The Federal Reserve is going to be very cautious of how it approaches monetary policy.”
Gold will also benefit if Trump’s plans to boost infrastructure spending and economic expansion fail to materialize. “The political reality is a little bit less robust than the market predicted,” says Melek. That could translate into more gains for the metal.