The interconnection between current events and market reactions has been in high gear since the November U.S. presidential election. With tweets flying around social media on a daily basis, it is easier than ever for politicians and citizens from around the world to interact. In recent months, President Elect Donald Trump has tweeted on sensitive global issues, giving insight into his potential policies and evoking emotional responses from world leaders.
Stabilizing Portfolios Among Political Uncertainty
In recent days, Trump sent out a tweet that suggested rising tensions with Japan and China:
“China has been taking out massive amounts of money & wealth from the U.S. in totally one-sided trade, but won’t help with North Korea. Nice!”
With pending political conflict among eastern nations, it puts the economic relationship on rocky terms as well. Once this occurs, the domino effect kicks in and could make stocks too risky of an investment for many traders. This means that investors could be looking to precious metals, like gold, to keep their portfolio stable.
Whether a true conflict will happen is unknown, but the uncertainty is enough to drive investors to more secure long-term investments, including gold. With the potential to disrupt trade agreements and enact protectionist policies, the incoming administration in the U.S. and the imminent E.U. Brexit has gold traders on the edge of their seats.
A fairly unexpected trend is also occurring and it could eventually rival gold when it comes to “safe harbor” investments: Bitcoin. Asian markets, especially China, are looking to hedge against their own currency and Bitcoin is becoming a popular choice. However, it is unlikely that Bitcoin will be on par with gold in 2017 as there are a few other factors in play that are likely to drive gold further upward than some are expecting:
Long-term policy changes in the U.S., like tax reform, are almost certainly not going to happen this year, so negative impacts to gold are pushed out to the future.
Federal Reserve interest rate hikes are still unknown and could be much lower than expected, meaning that gold may continue to hold value to investors in 2017.
Gold imports in India might decline as their government seeks to turn to gold-backed bonds rather than physical gold in the form of jewelry and bars. However, previous attempts had only marginal success.
All in all, geopolitical influences are in play more than ever. It is hard to say exactly where the gold market will end up, but it is clear that 2017 has potential for great success in the world of precious metals.
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