Gold’s getting a boost from the turmoil in Donald Trump’s West Wing. The haven rose for a fifth day as the president’s latest controversy prompted references to the 1970s Watergate scandal that helped to sink predecessor Richard Nixon, hurting the dollar as investors cut back on risk.
The president “perhaps is facing his toughest time in the office,” said Naeem Aslam, chief market analyst in London at Think Markets U.K. Ltd. Investors are questioning whether there is “any possibility of impeachment becoming a reality, because certainly that would hit the confidence massively.”
Bullion for immediate delivery climbed as much as 0.6 percent to $1,245.07 an ounce, the highest since May 3, and was at $1,243.78 at 9:41 a.m. in London, according to Bloomberg generic pricing, as the Bloomberg Dollar Spot Index sank to the lowest since November.
Gold has risen after Trump’s firing of FBI Director James Comey a week ago, and following reports he shared intelligence with Russia. In the latest twist, Trump is said to have asked Comey in February to drop an investigation into a former national security adviser, raising questions that he may have obstructed justice. The problems are seen as drawing the administration’s focus away from policies to aid growth, and have spurred recollections of former President Nixon, who was ensnared in Watergate and resigned.
“It’s a political dogfight,” Ole Hansen, head of commodities strategy at Saxo Bank A/S in Copenhagen, said by phone. “That does mean that his ability to act as a president, and to do what he’s promised, is sharply reduced and in that lies the risk of dollar weakness.”
Democrats say reports Trump asked Comey to drop the investigation into Michael Flynn amount to obstruction of justice, if true. “I hope you can let this go,” Trump told the FBI director, according to a Comey memo, as cited by the New York Times. The White House has denied that version of events.
‘Ability to Deliver’
On Trump’s position and the Comey fallout, “it’s much too early to say,” Hansen said, when asked whether the current situation is reminiscent of the Watergate era. “I don’t think the sum of that adds up to something that could potentially lead to the removal. But what it does do, is really just is bucking down the White House and the ability to deliver on promises.”
The concerns surrounding the White House may slow economic policy decisions, according to Westpac Banking Corp., which recommends investors short the dollar. “Regardless of the ultimate conclusion of the political storm over Trump’s actions on Russia and the security services, it will at the very least linger as a distraction that makes it more difficult for the White House to pass pro-growth policies,” said Sean Callow, a senior currency strategist.
“The rise in gold is largely a dollar play, with the dollar weakening because of Trump,” said Barnabas Gan, an economist at Oversea-Chinese Banking Corp., who also flagged overseas tensions. “There’s still more downside risk to gold in the long run, but in the short-term, given what the North Koreans are doing and what Trump is doing, the dollar is inherently weak.”
Bullion has advanced in 2017 — posting a run of four monthly gains through April — even as the Federal Reserve tightens monetary policy, with a rate rise in March and more increases likely to follow. Higher rates tend to curb the appeal of non-interest-bearing assets like gold.
While this year is a “pretty hazy year for bullion, the path of least resistance is on the bearish side,” said Singapore-based Gan, highlighting the Fed’s tightening cycle. “If we divorce away all the uncertainty, the rate-hike story should at least bring gold prices to $1,100.”