Market Update Gold Breaches US$1,300/oz on Trump Victory

Filed Pursuant To Rule 433

Registration No. 333-209926

November 9, 2016


Market Update
Gold breaches US$1,300/oz on Trump victory
9 November 2016 Donald Trump has become the 45th President of
the United States. Financial markets have reacted sharply. Global equity markets have
fallen, market expectations of a December US interest rate hike have been scaled back and the
US dollar is down. The gold price, by contrast, has risen to US$1,300/oz from US$1,275 before the results came in. Gold has outperformed other
major asset classes and currencies, including other traditional safe-havens such as the Swiss franc. Gold trading volumes have increased in Asia, but positioning remains light, and gold buying is widely expected to increase as European and US markets open.
Trump victory: Gold surges Donald Trump has become the 45th President of the United States, and Republicans kept control of the House and the Senate. Financial markets have reacted sharply. S&P 500 futures are down 2%, while the Nikkei has fallen
by over 5%. VIX futures are trading close to 20, their highest level since June. The gold price, by contrast, has risen to US$1,300/oz, from US$1,275/oz before the counting began, outperforming
major asset classes, including other safe-haven assets
(Chart 1). The US dollar, as measured by DXY, fell as much
as 2% against a basket of world currencies, though has
since recovered some ground. The Japanese yen - typically
a defensive trade - has strengthened 1.9% vis-à-vis the
dollar, and is now trading just below 103 yen per dollar. The
Swiss franc is 1% stronger, but we believe any further rally
will be capped by the threat of central bank intervention –
as board member Andrea Maechler signalled they may do
so in an interview on Monday.
Chart 1: Gold has risen as the stock markets falls*
us$/0z 1,350 1,340 1,330 1,320 1,310 1,300 1,290 1,280 1,270 1,260 2160 2140 2120 2100 2080 2060 2040 2020 2000 1980
11/7 11/7 11/8 11/8 11/9 9:30 14:30 19:30 0:30 5:30 10:30 15:30 20:30 1:30
Gold S&P 500
*Performance of the S&P500 Index outside of trading hours based on futures
Source: Bloomberg, World Gold Council
Gold trading volumes have risen sharply in Asia. In China,
SGE volumes have surged to 330 tonnes, 102% higher
than the level seen around the Brexit vote. However,
anecdotal evidence from bullion banks worldwide suggest
that institutional investors and hedge funds have yet to
come in, signalling a potentially sharper increase in gold
demand as European and US trading opens. We believe
that retail demand will also surge, as investors wake up to a
fundamental political change in the world’s largest
Gold broke key technical levels, surpassing its 200-day and
100-day moving averages (Chart 2). The next relevant
technical levels are US$1,350/oz, US$1,375/oz, and
US$1,400/oz. Going into the election, gold options
positioning at COMEX was pointedly bullish: open interest
and volumes were skewed toward calls with strike prices
above US$1,275/oz, which should also lend further support
to gold when European and US markets open.


Chart 2: The gold price has breached key levels
Source: Bloomberg, World Gold Council
A supportive global environment for
The global political and economic environment is gold
supportive. Swaps traders have reduced the odds of a
December interest rate hike to below 50% from 82% at
5pm US time, according to Bloomberg, a bullish sign for
gold. Global political risk in advanced economies remains
high. The pound sterling has plummeted by more than 15%
since the UK voted to leave the EU. Despite a recent
uptick, the pound remains under pressure as expectations
of a ‘hard’ Brexit linger and there is still no clear road map
out of Europe. Just last week, the High Court ruled that the
UK government must consult Parliament before triggering
‘Brexit’, adding uncertainty even as the government
Europe’s own problems seem poised to worsen too. It will
shortly enter election season next year, where many antiestablishment
and populist parties are polling well.
Elections in Italy, France, Germany and Holland could see
these parties significantly increase their vote share.
In our view, the intense political uncertainty that advanced
economies now face, combined with the unknown
aftermath of years of unconventional monetary policies
(quantitative easing, zero and now negative interest rates)
will make gold particularly valuable to investors in the
coming years. Gold is the only de-facto currency that
cannot be debased by printing more of it, and the only one
that does not carry political risk. There is a reason why
gold has outperformed every major currency throughout
history (Chart 3).
Chart 3: Value of major currencies relative to gold
through history*
*Breaks in the mark/euro reflect periods of hyperinflation and WWII.
Source: Bloomberg, Thomson Reuters, World Gold Council
Market Update | Gold breaches US$1,300/oz on Trump victory
1,400 1,350 1,300 1,250 1,200 1,150 1,100 1,050 1,000 01/2016 03.2016 05/2016 07/2016 09/2016 11/2016 Gold (US$/0z) 200-day MA 100-day MA
Value in gold 120 100 80 60 40 20 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 $ Gold


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Market Update | Gold breaches US$1,300/oz on Trump victory

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