Safe Haven Demand Surges in Sharp Volatility

The price of gold took a determined upward trajectory in the middle week of May as several U.S. indexes dropped to their lowest levels since Donald J. Trump and the Republican Party swept the national elections. Ever since November 7, 2016, markets have been buoyant on the promises of a businessman in the Oval Office and the prospects of lower taxes, deregulation, and massive public spending. The exuberance persisted even through dubious results on the 100-day report card but, three weeks later, it seems to have come to a screeching halt.

This may not have been the result of a single event but reaching a critical mass in the political morass surrounding the U.S. President. Trump’s firing of the FBI Director and multiple explanations of why, amidst questions of whether this constituted a Nixonian interference in the federal investigation of suspected Russian involvement in the election campaign, followed by the appointment of a high-profile independent investigator, had politicians and commentators uttering the word “impeachment”. As if to put a cherry on top of this scandal sundae, the President shared highly classified information with top Russian officials, resulting in a hit to public confidence in the all-important polling category of being capable of protecting the country from terrorism.

“The Chickens are Coming Home to Roost”

On Wednesday, May 17th, the Dow Jones and S&P 500 fell below their 50-day moving averages and the NASDAQ had its worst day in almost a year. Bank stocks fell 3 percent; tech stocks dropped 2.8 percent; the U.S. dollar lost all its Trump-era gains. Leading market strategists, including David Selkin of Newbridge Securities, say the mood has changed and it may not be a temporary shift. He (of the “chickens” quote) told Reuters the concern is long-term.

What that means is that investors, en masse, seem to be abandoning the dreams inspired by the election of Donald Trump, reaching a sufficient level of doubt in his ability to deliver on market-friendly promises to reform the tax system, spend a trillion dollars on infrastructure, and so on. This agenda is in mortal danger of being delayed indefinitely, if not lost altogether.

The Take-Away

Bullet proof. Teflon coated. Steel plated. These applied to the Trump Bump through 100+ tumultuous days but it seemed to hit a big bump of its own on Wednesday, May 17. The VIX Volatility Index (known as Wall Street’s “fear index”), after multi-year lows, skyrocketed 46%. This reflects what has had investors scurrying for safe havens throughout 2017. The price of gold, even after softening at the end of the week, continues to march upwards. It remains to be seen whether the Federal Reserve’s Open Market Committee can maintain its resolve to stay on a rising interest rate path when it meets in June.