PETALING JAYA: The gold price uptrend could sustain as investors brace for the American presidential election uncertainty, potential fiscal risks in the United States and strong central bank buying.
Analysts said worries over a potential Republican win leading to soaring US debt levels are driving investors toward safe- haven assets like gold.
“Investors are increasingly anxious over a potential Republican win in the US election, concerned it might not only drive US debt through the roof but also bring a global trade showdown,” SPI Asset Management managing director Stephen Innes told StarBiz.
OCBC foreign-exchange strategist Christopher Wong noted that the widening Trump-over-Harris spread is causing worries over tariffs, inflation and fiscal concerns.
He pointed out that Republican candidate Donald Trump’s proposed tax cuts could add an estimated US$7.5 trillion to US debt, stoking worries over fiscal sustainability.
“The potential ballooning in US debt also stirred up the narrative of de-dollarisation, adding to demand for gold,” Wong said.
Meanwhile, Innes pointed out that the gold price was defying traditional trends, gaining ground even as US real yields rise.
“Usually, as real yields rise, gold retreats. Not this time.
“Despite 10-year real yields reaching highs of 2.5% this year and the Federal Reserve cutting rates last month – sending real yields up another 30 basis points – gold has climbed 7% over the past year, hinting at a significant decoupling from real rates,” he said.
Hence, Innes noted that assessing gold’s rich valuation against real yields isn’t straightforward.
“Being an inert asset, gold’s appeal often lies in its contrast to the inflation-adjusted risk-free rate.
“Yet, traditional metrics aren’t fully explaining this rally, and other forces are at play,” he added.
He believes central bank buying from BRICS nations, aiming to diversify from the greenback, certainly adds fuel to the fire.
However, Innes said there is “a quieter, deeper worry” regarding the US’ fiscal health.
“The whispers of a looming US debt crisis are growing louder, even if they tend to be more bark than bite,” Innes noted.
“For many, perception is reality, and gold’s surge might be mirroring broader fears about the unsustainability of US burgeoning debt.”
Gold closed the trading week at US$2,736 a troy ounce and Innes now sees the potential for gold to reach US$3,000 an ounce.
Similarly, Wong said the recent gold surge is driven by markets factoring in risk premiums as the US election day approaches.
He said defensive positioning and Trump hedges, such as long US dollar, long gold, and short Chinese yuan, may still gain traction in the near term given the fluidity of election developments and geopolitical uncertainties. The closely contested US election results should be known on the night of Nov 6.
Wong said the result will have implications for various asset classes, including gold and foreign exchange, as shifts in fiscal, foreign and trade policies may occur depending on whether Donald Trump or Kamala Harris is elected as the next president.
“A Trump outcome may see a play-up of US-China trade tensions and should inject some uncertainty to markets and continue to fuel demand for gold.
“While a Harris outcome should see some of these volatility and uncertainty ease.
“On this outcome, we may possibly see gold prices find a breather after a near 35% rally this year,” Wong concluded.
