Political risks in Europe also play part in bullion’s popularity

IWAO MATSUZAWA, Nikkei staff writer

Risk-averse investors see a rosy future for gold markets.

TOKYO — U.S. President Donald Trump’s suggestion that the country might break with its traditional strong dollar policy is driving global investors into gold markets as a hedge against losses from a possible currency depreciation.

Ahead of his inauguration last week, Trump told The Wall Street Journal that “Our dollar is too strong” compared with the Chinese yuan.

Trump could shift away from the U.S. monetary policy upheld by past presidents, which has been based on the assumption that a strong dollar is in the national interest. Investors are flocking to gold, the price of which tends to move in the opposite direction of the dollar, to mitigate investment risks.

Gold experts in Japan estimate that optimism in gold markets is growing.

“European and U.S. hedge funds have started targeting gold as an investment destination, with a U.S.-China currency war in mind,” said market analyst Itsuo Toshima.

Yuichi Ikemizu, Tokyo branch manager at ICBC Standard Bank, said that “funds that had been active buyers of dollars and stocks have increased their buybacks and new buy orders in gold markets.” The announcement that Britain will leave the European Union’s single market and Trump’s comments hinting at pursuing a weaker dollar spurred these moves, he said.

Gold, known as a “stateless currency,” has conventionally been used as an alternative to dollar assets. Therefore, the price of the metal often moves in the opposite direction of the dollar index, which measures the greenback against other major currencies.

U.S. interest rate hikes are bad news for gold, which offers no interest, pushing down prices. However, investors have apparently renewed their belief that gold is “the safest asset” in financial and commodity markets amid Trump’s unpredictability and lower rate hike probability.

During his presidential election campaign, Trump emphasized his vow to revive the U.S. manufacturing sector and create more jobs in the Midwest’s so-called Rust Belt, the former industrial heartland. Even before assuming the presidency, Trump blasted the transfer of automakers’ plants to Mexico, where they can hire cheap labor and increase imports of cheap steel from China.

Toshima already at that point forecast the rise in gold prices, anticipating that Trump “at some point in time would refer to the weakening of the dollar” to revive the international competitiveness of the U.S. manufacturing sector.