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Gold offers hedge against US market uncertainty says VanEck

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Joe Foster, portfolio manager and gold strategist at VanEck writes that as the risks of a Trump presidency have been coming into clearer focus, markets are starting to reflect reality following the irrational euphoria after the November election.

However, Foster writes that markets seem to be obsessed with the new Trump administration – similar to the market obsession with the decisions of the Federal Reserve since the last financial crisis. Thus, he says, the President’s controversial statements and actions contributed to a recent weakness in the US dollar.

“President Trump broke with tradition by indicating that a strong US dollar is not necessarily in the best interest of the United States. Incoming Treasury Secretary Steven Mnuchin also made comments that were interpreted as unsupportive of the dollar. In addition, controversial executive orders and anti-trade manoeuvring have damaged investor confidence and contributed to further dollar weakness, writes Foster.

“The markets are beginning to price in actual risks of a Trump presidency,” he says. Meanwhile, Foster says that gold and gold shares have had an encouraging start to the year, bouncing off oversold year end levels. While the gold price gained 5.1 per cent in January, the NYSE Arca Gold Miners Index gained 13.7 per cent. The MVIS Global Junior Gold Miners Index that tracks the performance of small-caps in the global gold sector, advanced even 17.9 per cent. “As long as interest rates are still at microscopic levels and US stocks at all-time highs, gold, in our view, is an obvious investment alternative as a hedge against market uncertainty and financial risk,” Foster adds.

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