Gold After POTUS Inaugurations – History Repeating?

At a time when everyone is trying to figure out where this market may go it may be instructive to look at history (with the usual waiver ‘past performance may not be a predictor of future results’….but it often ‘rhymes’…).  Over the weekend we saw this from Bloomberg:

“Gold bulls wagering the bullion rally has more room to run may have history on their side with the arrival of a new U.S. president.

A look at recent presidential transitions supports optimism among traders over the metal’s prospects. Gold has averaged gains of almost 15 percent in years marking the inauguration of a new president since the 1970s, advancing in five of those seven years. In contrast, the S&P 500 index of equities declined in four of those years for an average loss over the period of 0.9 percent.

From Presidents Gerald Ford to Barack Obama, bullion has often served as a haven in times of political flux. The metal has climbed almost 5 percent this year as questions over the possible economic impact of Donald Trump’s policies add to investor angst over Brexit and mounting trade frictions. Bulls reason that gold will extend its gain as scant details of Trump’s fiscal stimulus program and tensions with trading partners including China unnerve investors.”

As often happens soon after such predictions the market started to do the opposite.  Last night the S&P500 surged and reached new heights whilst spot gold lost around $9 in a similar % fall to the shares’ gains after hitting a 2 month high on Monday.  Last night’s share rally seemed to take the (short term) good bits of Trumps actions (reinstating some major oil pipe construction projects) and ignoring the potentially damaging (medium term) trade protectionism policies, one of which was ditching the Trans Pacific Partnership directly affecting Australia.  We expect these confused market fluctuations / volatility to continue for some time as, post the Trump hope trade, the market tries to assess the Trump reality implications.  It’s why we preach balance.  The harsh reality is that in the short to medium term no one really knows where this will go and there could well be more gains to be made in shares.  What we do know however, is that at some time this cocktail of record high debt, stimulus supported financial markets, and unstable geopolitical environments WILL see a crash in financial markets.  The unprecedented extent of those contributing factors promises one of epic proportions.  Making sure you have that uncorrelated asset in your portfolio has never been more important.