Impact of Tweets on the price of Gold 2.0

Although difficult to quantify with precision, tweets by influential personalities do impact the prices of gold besides affecting a range of other financial instruments.

Introduction

Contrary to popular belief, the prices of gold are impacted by some non-financial factors that are not directly linked with the asset. The major impact on the status of equity markets, and the demand for yellow metal around the world originated from the policies of the central banks. But the less conspicuous factors such as tweets also do sway the value of the gold albeit indirectly and in a manner that is less apparent. Let’s help understand this with the following instances where tweets from influential personalities had an effect on the prices of gold.

Tweets of Donald Trump

The impact of tweets of former US President Donald Trump on gold prices was very evident during the time of his presidency. Trump’s Twitter feed made an impression beyond domestic politics with effects reverberating across the financial sector. Its impact on monetary indicators, assets, and avenues of investment including the prices of gold was tremendous.

Although Trump never directly mentioned gold in his tweets, his outrage at the policy of Federal Reserves of not reducing the interest rates impacted the perceptions of monetary supplies, equity markets, and the value of gold. Also, straight talks of the former president of the US on trade hostilities between his country and China also helped gold to consolidate its position as a safer avenue of investment among investors. According to the analysis of RBC, one of the world’s largest banks headquartered in Canada, the tweets of Trump had a considerable influence on the prices of gold — both directly and indirectly.

The bank found in its investigation that the hankering of the former US president for lower interest rates stoked the fear of inflation among investors. This is because the reduced rates increase the supply of money in the system with more and more people availing the opportunity of borrowing from banks and financial institutions. This, in turn, leads to an increase in money circulation, thereby leading to a sharp increase in the prices of various commodities. These inflationary pressures have historically favored the prices of gold and here also, the gold ascended in its value over the speculations of a rate cut by the Federal Reserve which was under intense pressure from Trump.

Impact of Elon Musk’s Tweets

The tweets of Elon Musk are another textbook example of Twitter demonstrating its prowess to rock the fortunes of the financial world. Cryptocurrency and Gold are considered rivals as both offer good prospects for storing value in the long term. This means the declining fortunes of one class of assets boost the prospects of another.

Musk’s tumultuous affair with Bitcoin is very much evident to all. The founder of Tesla had all praise for the world’s largest cryptocurrency not long ago. In February earlier this year, Musk tweeted Tesla’s decision to accept Bitcoin as payment for its electric cars. Tesla also revealed that it had invested in Bitcoin with an investment worth $1.5 billion. Both these developments led to an unprecedented surge in the value of Bitcoin, taking the digital coin to its all-time high of $65k.

The stronger Bitcoin started impacting the prices of Gold, however, the momentum was short-lived as Musk backtracked by tweeting Tesla’s about-turn of not accepting Bitcoin in May. He cited the large electricity requirement for mining Bitcoin as a reason for withdrawing the support. This sudden about-turn saw Bitcoin plunging in its value which, in turn, had a positive impact on the value of the yellow metal.

Conclusion

Despite a visible pattern, it’s not easy to attach the dollar value to the gain or loss that the value of gold experiences due to specific tweets of influential personalities. Even the analysis by RBC stopped short of quantifying the magnitude of impact that tweets of Donald Trump had on the value of gold. Still, there is no denying the fact that Tweets from prominent and influencing personalities, especially the ones belonging to policymaking, corporates, businesses, etc., trigger a chain reaction that can impact various financial instruments and investment tools including the value of gold among others.