Precious Metals

As the stock market rises, gold usually falls, but not in 2017

The price of gold has been on the rise in 2017, up to its highest level since the wake of President Donald Trump’s unexpected election victory.

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The old investment rules dictate that when the price of gold is rising, the U.S. stock market and overall economy are down, and vice versa. That’s because gold is seen as a safe-haven investment — a hedge against economic slowdowns.

But a popular meme since the political rise of President Donald Trump is that “the old rules don’t apply anymore,” and that apparently is true of precious metals investing, too.

At least during the first weeks of 2017.

The price of gold sits at $1,242.50 per ounce on Feb. 8, up from $1,131 per ounce on Dec. 22 and the highest it’s been since Nov. 10, when it closed at $1,267.50 on its way down from a spike of over $1,300 on Nov. 9, the day after Trump was elected, when investors were uncertain about the effects his election would have on the markets. 

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During the same period of time, from Dec. 22 to Feb. 8, the Dow Jones has risen right along with gold, from 19,918 to 20,032. It’s up from 18,332 on Nov. 8, Trump’s election day. 

So why isn’t the price of gold falling with the strong performance of the stock market?

Adam Shell of USA Today writes, “Here’s a short checklist: Economic policy uncertainty in the U.S. under President Trump. Political anxiety surrounding the populist movement in Europe and elsewhere. Ongoing stimulus from global central bankers. Angst over rising inflation. The U.S. dollar falling in value versus foreign currencies.”

So while the news today is good for gold bugs, investors seem wary of what’s to come, both in the U.S. and international political landscapes.

But there’s also another factor, U.S. Global Investors CEO Frank Holmes tells USA Today: low-performing bonds.

Gold, Holmes explains, is attractive to investors because of “lower bond yields and higher inflation readings.”

Though gold does not pay interest, it is seen by many as a better investment than bonds when the “real interest rate — the rate of interest on, say, a 5-year U.S. government bond minus inflation” is shrinking or even negative as it has been lately.

Read the full USA Today story here.

Gold is a safe-haven asset

Gold investing has historically been viewed as a hedge against the unpredictability of the overall economy, and in turn, a safe haven when other markets experience a downturn. 

Gold is valuable. That is based on the fact that we know there’s not a lot of it, and we know it is appealing to people. So while the health of someone’s investments in the stock market is subject to the performance of the companies invested in, gold is a known commodity with a value that, while it does fluctuate over time, generally does not fluctuate with the suddenness that a company’s stock can.

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