USD down

A slump in the value of the US dollar has seen gold prices climb overnight, reaching a morning peak of $1,355 per ounce. The price, a four-month high for gold, has been driven by comments made by the US Treasury secretary Steven Mnuchin whilst at the World Economic Forum in Davos, Switzerland.

In a statement that moved away from the traditional stance of promoting a strong dollar, Mr Mnuchin extolled the benefits of a weak dollar and sought to reassure investors and the public alike that the US was open for business. The Treasury secretary also said the US government was committed to economic growth of 3% or higher, and that the currency’s short-term value was “not a concern of ours at all”.

“The dollar is one of the most liquid markets. Where it is in the short term is not a concern for us at all. A weaker dollar is good for us as it relates to trade and opportunities. Longer term, the strength of the dollar is a reflection of the strength of the US economy and that it is, and will continue to be, the primary reserve currency” said Mnuchin, speaking in a press conference yesterday.

Analysts at SP Angel have called this latest price rise the biggest annual surge in gold for seven years, with the most similar rise occurring last September – though this was driven by fears over North Korea’s nuclear missile testing.

The US dollar’s weakness has boosted both the Pound Sterling and the Euro, as well as strengthening the Japanese Yen, but surprisingly it has also served as a distraction for the markets, with the stock market’s bull run pausing for breath in the past 24 hours.

The live gold price in US Dollars, highlighting the peak rises throughout the day as the greenback suffers

The ambition to have a weakened dollar is something that has been core to President Trump’s economic plans, with the logic being that a weak dollar = higher exports = a lower trade deficit = economic growth is stimulated. The gamble here is that the stimulus encourages enough growth to outweigh the losses from the devalued US currency.

Secretary Mnuchin’s statement isn’t the only reason that the US dollar’s value has dropped in recent days however. President Trump announced new import tariffs as part of his ‘America First’ trade policy. Under the new rules, imported washing machines and solar panels would be hit with a two-tier tariff, in order to promote American businesses. The move has been welcomed in the US but has revived fears that the US may be about to enter a trade war with China over the latter’s subsidisation of certain industries. Investor concern has seen many switch to risk-aversion trade and the acquisition of gold bullion once more.

All eyes will be on the US leader on Friday, as President Trump delivers his economic policies and the aims beyond that to an audience at the Davos conference. It is expected that he will reiterate the remarks of Mr Mnuchin, but investors and economists alike know that Mr Trump is anything but predictable.