Gold Will Benefit as Investors Lose Patience with Trump Presidency

(May 22, 2017 - by Neils Christensen)

Market reaction to the latest turmoil in the While House shows that investors are losing patience with the Trump administration and this should continue to underpin precious metals this year, according to one commodity analyst.

In an interview with Kitco News, Maxwell Gold, director of investment strategy at ETF Securities, said that the latest drama in Washington, which has culminated in the appointment of a special counsel to investigate alleged collusion between Russia and President Donald Trump’s campaign team during last year’s election campaign.

Gold added that the drama in Washington is providing major distractions to important economic proposals that has been the main driver of equity markets. Since Trump won the November Presidential Election, the S&P 500 has rallied almost 13%. However, the rally hit a brick wall Wednesday after reports circulated that Trump asked the-FBI director James Comey to call off an investigation of former White House national security adviser Michael Flynn’s ties to Russia. 

The news caused equities too see their biggest selloff in eight months. Despite bargain hunting Thursday, investors are still reluctant to jump back into equities. The S&P 500 is up 0.36% last trading at 2,365 Thursday. At the same time, gold prices are down as a result of modest profit taking. June Comex gold futures last traded at $1.253.10 an ounce, down 0.46% on the day.
“Risks of further delays in fiscal stimulus and tax reform are coming to fruition,” said Gold. “The exuberance seen in equities markets is starting to unwind because investors are losing patience and that will be good for gold.”

Gold said that he also sees the major selloff in equities as an important lesson for investors: that they should be properly diversified. Since the beginning of May, financial markets have been plagued by low volatility with the CBOE Volatility Index ($VIX) falling to levels not seen since 1993.  Investors were shunning gold, jumping into equities as risk sentiment fell to unprecedented levels. 

“The selloff shows how quickly sentiment can change,” he said. “Regardless of the risk profile in the marketplace, gold still has an important role in a well-diversified portfolio.”