President Donald Trump has promised a wave of changes that could help stimulate the economy, but the policy changes will take time to come into effect, leaving the markets open to short-term volatility. Consequently, investors may turn to alternative assets like precious metals exchange traded funds to hedge risks.
The equities markets have rallied on the prospects of tax reform, deregulation and increased spending. However, these changes won’t happen over night.
“Given the complexities of bringing such policies to fruition, however, markets may be under-pricing the impact that delays and compromises may have on current valuations,” Maxwell Gold, Director of Investment Strategy at ETF Securities, warned in a note.
Moreover, Gold pointed to other risks that could shake the markets ahead, including the return of the U.S. debt ceiling debate in March and potentially more interest rate hikes than previously expected, which could impede U.S. stimulus plans.
The U.S. national debt is nearing $20 trillion and U.S. debt to gross domestic product is hovering around 105%. Consequently, conservatives in Congress may be loath to cut tax revenue and increase deficit spending.
Even if the government pushes through increased fiscal spending by increasing borrowing, the cost of servicing the debt will also increase in a rising rate environment.
“Extending the national debt and increasing the deficit could deteriorate the U.S. fiscal budget and health longer term, particularly if these stimulus plans lack a trickle down economic impact,” Gold said. “If investors begin to anticipate fiscal policies delays, current market enthusiasm could wane, leading to a potential rise in volatility.”
Consequently, people may consider alternative assets to hedge against the potential risk of delays in policy changes. For example, investors can look to a number of physically backed precious metals-related ETFs as a way to diversify a traditional stock and portfolio, including ETFS Physical Swiss Gold Shares (NYSEArca: SGOL), ETFS Physical Silver Shares (NYSEArca: SIVR), ETFS Physical Platinum Shares (NYSEArca: PPLT) and ETFS Physical Palladium Shares (NYSEArca: PALL). ETF investors can also use the ETFS Physical Precious Metals Basket Shares (NYSEArca: GLTR) as a catch-all of all four precious metals.
For more information on the precious metals market, visit our precious metals category.