While volatility has lessened recently as the French election results provided relief to investors, there are still many events that could set volatility moving up again.
One of the most important factors that will impact post-election investor behavior will be the Fed’s rate hike trajectory in 2017. Comments by Fed officials and market expectations point to another rate hike in June. The Fed’s anticipated rate hikes could continue to weigh on precious metal prices. This trajectory will, to a large extent, depend on US economic data and the Trump administration’s policies.
Global geopolitical issues
As we’ve previously discussed in this series, geopolitical issues such as US-North Korea tensions could lead to extended uncertainty in the market.
Uncertainty and gold
In the medium term, many developments will depend on policies pursued by the Trump administration. However, as we’ve noted, policies supporting higher inflation could boost gold prices. For now, however, inflation is not sufficient to impact the real interest rate and prompt investors to load up on gold.
There are other factors, however, such as a trade standoff between the United States and China. China could start building its gold reserves to reduce its reliance on the US dollar, which would also be beneficial for gold. The recent reports regarding Trump sharing classified information with Russian officials are also helping gold. Any further similar situations could erode investors’ faith in the US dollar, much to the rejoice of gold.
The above graph shows volatility as indicated by the CBOE (Chicago Board Options Exchange) Volatility Index. Increased uncertainty could benefit gold miners (GDX) (GDXJ) such as Yamana Gold (AUY), Harmony Gold (HMY), Kinross Gold (KGC), and AngloGold Ashanti (AU).