It said Trump’s approval rating was a good proxy for Washington risks, correlating with both interest rates and gold prices. Together with a weaker dollar, that accounted for around 85 percent of gold’s recent rally, it said.
Still, it added, that risk was set to fade.
“In coming months, the unfortunate aftermath of hurricane Harvey suggests that Washington is going to have to overcome their differences, pass spending bills, try harder to avoid a government shutdown and pursue infrastructure projects sooner than later,” it said.
Goldman has lowered its estimate of the probability of a government shutdown to around 15 percent from 35 percent.
It added that gold can offer a good hedge against global risks when the event leads to a debasement of the dollar, but on average, it doesn’t respond too much to geopolitics after controlling for macro variables.
That meant the situation on the Korean Peninsula wasn’t likely to propel gold much, Goldman said.
North Korean tensions were “very serious,” but the market wasn’t adding much of a risk premium, suggesting it still viewed military escalation and disarmament as tail risks, the bank added.
“North Korea may not really have an incentive to launch an attack as this would likely lead to retaliation. But it is also unlikely to give up nuclear capabilities as it likely sees them as a guarantee of its safety,” it said. “As a result, from game theory perspective, it is a stable equilibrium.”
