President-elect Donald Trump’s plan to spend on big projects could send inflation up, which would help gold, according to a fund manager.
Trump proposed a “$1 trillion over a 10-year period” infrastructure plan in his victory speech, which has already boosted the prices of metals in the last week.
Appeal for gold to get a boost
Although, speculation was still rife over what lies ahead after Mr Trump takes office, it is generally believed that fiscal spending is much easier to achieve compared with his other proposed reforms. This should predict appeal for gold as an inflation hedge.
Alex Merk, president and CIO of Merk Investments said, “Ultimately, what is going to matter is if inflation is going to tick up more than rates are going to pick up–meaning is the Fed going to be behind the curve or not? If the Fed is behind the curve, then gold should do just fine; if however the Fed is able to get in front of this or if inflation is not going to materialize much but the yield curve remains steep and real rates rise, then yes, the gold selling is over”.
As results of the presidential results rolled in, gold prices spiked approximately 5 per cent last week on risk aversion but sank to a six-month low on Monday as the dollar strengthened. In Asia, the spot gold price was around $1,224 an ounce on Tuesday as the market weighed Trump’s economic plans.
Merk said that the uncertain environment will likely keep gold afloat. He said that at the end of the day, the Fed is going to be behind the curve and gold will be just fine.
While real rates haven’t gone up, it is anticipated that the Fed would get tougher and hike rates with more fiscal spending spurring inflation.Risk Warning:
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