What’s Driven The Increase In Gold Prices Over The Past Month?

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Newmont Mining

Gold prices have risen around 4% since the Fed’s rate hike in the middle of last month, as illustrated by the chart shown below.

Gold Prices Jan - Apr 2017

Source: Kitco

While we expect gold prices to average lower this year as compared to 2016, there has been a short term rally in prices over the past month. This has been due to a number of factors which have driven up the safe-haven investment demand for gold. These factors include the upcoming French Presidential elections, geopolitical uncertainty in the Middle East and North Korea, the failed Republican healthcare bill, and a weaker than expected U.S. jobs report for March.

The French presidential election is set to be held on April 23. The uncertainty surrounding the outcome of this election has investors on edge, with one of the candidates advocating a potential exit of France from the European Union. Uncertainty will certainly persist over the next couple of weeks leading up to the election. In addition to concerns over the outcome of the French presidential election, heightened uncertainty pertaining to geopolitical tensions in Syria and North Korea over the past week or so has translated into higher safe-haven demand for gold . These geopolitical flashpoints are likely to remain a source of uncertainty in the near term.

In addition to the factors described above, domestic developments have also dampened gold prices. The failure of House Republicans to pass through a healthcare bill last month has cast some doubt over the ability of the majority party to implement President Trump’s legislative agenda. Moreover, the recently released underwhelming jobs report for March, has dampened expectations of a faster-than-expected Fed rate increase, supporting higher levels of gold prices. [1] Nevertheless, the Fed is still expected to raise interest rates by an additional 50 basis points over the rest of the year. [2] Strengthening economic conditions in the U.S. and rising interest rates are expected to limit the upside for gold prices in the near term. However, the aforementioned geopolitical developments and the fractious domestic political environment remain upside risks for gold prices. Thus, though gold prices will average lower this year as compared to the last one, the upside risks are likely to limit the decline in prices this year, as illustrated by our forecasts for Newmont’s realized gold prices.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Newmont Mining

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Notes:
  1. US created only 98,000 jobs in March, vs 180,000 expected, CNBC []
  2. The Fed’s New Dot Plot, Bloomberg []