Gold jumped by more than 5% on the news of a Trump victory. But the bounce hasn't lasted. The yellow metal promptly sank to a six-month low. Trump's conciliatory victory speech fuelled hopes that his bark is worse than his bite. Global risk appetite recovered as investors chose to concentrate on the parts of his programme that should stimulate growth, such as his tax cuts and plans to boost infrastructure spending, instead of his protectionism and political unpredictability. The prospect of higher interest-rates due to rising inflation makes gold less appealing, since it offers no yield. Dearer money also implies a higher dollar, which undermines gold because the precious meal is priced in dollars.
But markets "blindly stampeding towards Trump's new business nirvana", as Marex Spectron's David Govett puts it, should think twice. For one thing, the need for an asset that thrives on bad news has hardly gone away.The eurozone crisis may flare up again if the Italian referendum fails next week; Austria may be about to elect a far-right head of state; and France could also succumb to the new wave of populism next May, which implies the end of the euro and the EU.
Trump's apparent irascible nature and thin skin could easily trigger an extremely damaging trade war and increase tension in the Middle East. Meanwhile, the US economy looks close to full employment, and "a big fiscal stimulus at this stage of the economic cycle is much more likely to boost inflation rather than real economic growth", says Capital Economics. Interest rates will rise, but if inflation quickens too, real interest rates will stay relatively low, and it is the inflation-adjusted return that matters most when investors weigh up the opportunity cost of holding an asset that has no yield. Markets may soon remember why gold is seen as a safe haven and store of value. "Don't cancel that insurance just yet."
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