Much of what has happened in the U.S. stock market so far in 2017 is relatively easy to explain. Investors see President Donald Trump’s policies of deregulation and lower corporate taxes as rocket fuel for U.S. business, and the stock market has certainly reflected that optimism since Election Day. The S&P 500 is up more than 10% since the election.
At the same time, Trump’s protectionist rhetoric will likely continue to keep the U.S. dollar strong relative to international currencies.
“Largely, the USD will appreciate because U.S. protectionism will cause economic weakness overseas and underscore the importance of the U.S. as the safe harbor for investment,” Kennesaw State University associate professor of economics Mikhail Melnik, PhD, recently told Benzinga.
Since Election Day, the bullish dollar index — which traders under the symbol UUP — is up 2.%.
Finally, the major market volatility that many experts predicted might happen following a Trump victory is nowhere to be found. The CBOE Volatility Index (VIX) is down 15.1% in 2017.
The current market environment would typically be a recipe for disaster for gold investors. However, that simply hasn’t been the case so far in 2017 as several gold-related stocks and ETFs are up several percentage points.
Why has gold been so strong in 2017 in a climate of rising stocks, rising interest rates, a rising dollar and plummeting market volatility? Traders may be looking to have their Trump cake and eat it, too, by taking advantage of rising stocks and a stronger dollar while still using gold as a hedge against the potential impact of negative geopolitical headlines.
Historically low (and even negative) interest rates around the world have left investors with few viable flight-to-safety investment options. The gold hedge may have become so popular that the influx of capital will keep gold’s positive momentum going throughout 2017.
Benzinga is a financial media outlet and a content partner of the Detroit Free Press. Get real-time, actionable investment advice at Benzinga.com.