Gold Vs. Everybody: How Strength In The Yellow Metal Is Defying Conventional Wisdom

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 SPDR S&P 500 ETF Trust SPY is up 10.2 percent since the election.

Gold On A Rip

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, Ph.D. recently told Benzinga.

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Since Election Day, the PowerShares DB US Dollar Index Bullish UUP is up 2.9 percent.

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 percent in 2017, and the iPath S&P 500 VIX Short Term Futures TM ETN VXX is down 27.6 percent year-to-date.

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.

Bucking Historical Trends

The SPDR Gold Trust (ETF) GLD is up 9.2 percent year-to-date, and the Market vectors Gold Miners ETF GDX is up 17.0 percent. Levered gold funds Credit Suisse AG – VelocityShares 3x Long Gold ETN UGLD and Direxion Shares Exchange Traded Fund Trust JNUG are up 28.3 and 103.0 percent this year, respectively.

But Why?

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.