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How Gold Might React to Trump’s Upcoming Inauguration

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Trump’s inauguration and gold

Gold recently saw its highest weekly rise of 2.2% for the last two months. It was likely helped by the weakening US dollar. Gold and the US dollar have an inverse relationship. The higher the dollar soars, the lower the demand for dollar-denominated assets such as precious metals.

The overall markets are uncertain ahead of the January 20, 2017, inauguration of US president-elect Donald Trump. The uncertainty may give more breathing room to precious metals. As we know, these metals are often preferred during times of market instability.

The graph below depicts the price changes in gold with respect to the volatility index (or VIX) during 2016. Although gold and volatility typically track each other, the graph shows that they can also deviate. At the end of 2015, there was a higher correlation between the two indicators.

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Mining shares rebound

The rise in precious metals got a rebound in gold and silver following funds such as the iShares Silver Trust (SLV) and the iShares Gold Trust (IAU). These two funds lost their 2016 gains when they plummeted during the final quarter of the year. Major mining companies include Eldorado Gold (EGO), Alacer Gold (ASR), Iamgold (IAG), and Newmont Mining (NEM).

With speculation about the presidential inauguration, gold reached its highest level since December 5, 2016, at $1,184.90 on Thursday, January 5, 2017. During the last two years, gold has been very dependent on US interest rates. Much of the fall in precious metals occurred before the Fed’s December 2016 interest rate hike.

In the next part of this series, we’ll see what happens to gold when US interest rates change.

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