Leading up to last week’s presidential, the feeling among investors was almost universal that the only asset class that stood to benefit from a potential victory by Republican Donald Trump was gold.
That could still prove accurate, but in the days immediately following Trump’s surprise victory, the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) and other gold exchange traded products are tumbling.
Democratic challenger Hillary Clinton may have actually been the preferred victor for gold ETFs because historical data suggest gold performs better when Democrats are in the White House.
Looking ahead, the ongoing negative interest rate environment, with European and Japanese central banks cutting benchmark rates deeper into the red to promote growth, could push investors toward gold bullion as a more stable store of wealth.
Related: Demand Supports Gold ETFs
However, Trump’s stunning victory is prompting a spate of outflows from once hot gold ETFs. GLD, the largest gold-backed ETF, has been one of this year’s top-asset gathering ETFs.
“At the moment the bears seem to have the best of it. Since the election investors in top physical gold-backed exchange traded fund – SPDR Gold Shares – have dumped a net 15.1 tonnes (buying on Wednesday, but offloading more than 20 tonnes on Thursday and Friday,” reports Frik Els for Mining.com.[related_stories]
Gold trading volumes have already surged in Asia. For instance, in China, SGE volumes jumped to 330 metric tons, or 102% higher than the level seen around the Brexit vote, according to the World Gold Council. Moreover, anecdotal evidence suggests that institutional investors and hedge funds have yet to jump in, which indicates that gold demand has more room to run.
“Gold bears are making big bets that Trump’s plans for fiscal stimulus, including a $500 billion infrastructure spending program, will lead to strong US economic expansion, higher interest rates and a number of prominent hedge fund managers and billionaires running family offices have moved aggressively out of gold and into stocks,” according to Mining.com.
For more information on the gold market, visit our gold category.
SPDR Gold Shares
Tom Lydon’s clients own shares of GLD.