Date
21 October 2017
Some investors buy gold when political or economic uncertainty increase, believing it will hold its value better than other assets in shaky times. Photo: Reuters
Some investors buy gold when political or economic uncertainty increase, believing it will hold its value better than other assets in shaky times. Photo: Reuters

Gold surges as political headwinds intensify

Gold prices rose to their highest level in nearly three months on Monday, reflecting investors’ anxiety over a rapidly evolving global political landscape, the Wall Street Journal reports.

US gold futures rose US$11.50, or 0.9 percent, to US$1,230 after France’s Marine Le Pen reiterated her party’s commitment to pull France out of the European Union and to restore the franc as the country’s official currency.

Gold’s rise in recent weeks has been remarkable, coming as it has during a period in which US and global economic data have generally been improving.

Some investors buy gold when political or economic uncertainty increase, believing it will hold its value better than other assets in shaky times.

A rocky start to US President Donald Trump’s term has also discomfited some investors.  Trump has clashed with US allies such as Mexico and some executive orders on immigration and refugees face legal challenges.

Gold’s rise is the latest illustration of how politics has re-emerged as a key driver of markets since last summer after a years-long period during which asset prices were driven largely by the actions of central banks.

“During the last couple of years, politics did not have much of an impact because they did not threaten the essence of the economic system,” said Edward Meir, a strategist at INTL FCStone. “Now, it’s like a minefield out there. Lots of things can blow.”

Political uncertainty hasn’t been this high since a debt crisis hit Greece and threatened to spread throughout the European Union, Meir said. Demand for gold and other safe haven assets soared in 2011, driving prices to an all-time high of around US$1,900 a troy ounce.

Besides France’s April 23 vote, challenges from anti-establishment parties loom in Dutch, German and Italian elections this year.

Investors worry that populists leaders could close borders, tax imports or move to leave the eurozone, threatening to unravel a political and economic order that has held sway for decades.

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