Trump’s so puzzling that gold, emerging stocks lock hands

Donald Trump is good for risk. And, Donald Trump is bad for risk. Such are the gyrations in global markets in the run-up to his inauguration as US president on Friday that gold, a traditional store of value at times of increased uncertainty, and higher-risk emerging-market stocks are rising in tandem. Bullion has advanced every day but two in 2017 as investors hedge against the prospect of political and inflation risks during Trump’s presidency, and speculate the UK will leave Europe’s single market. At the same time, the MSCI Emerging Market Index of equities is making the best start to a year since 2012 on optimism Trump’s spending plans will spur growth. “Ever since the US elections came into view, a lot of things, including historical correlations, have been thrown overboard,” said Simon Quijano-Evans, a strategist at Legal and General Group Plc in London. “It is a combination of equities starting to rally on expectations of the reflation story in the US passing through to higher risk exposure, coupled with some sort of increased hedging through gold, which may also be based on the inflation story.” Developing stocks and gold moved in opposite directions for most of last year. That negative correlation turned positive in December, and was this week at the highest level since September 2013. Frontier-market equities are tracking bullion most frequently since May 2012. The connection between the precious metal and developed markets is also strengthening. The correlation may unravel once Trump starts to implement his policies, according to Quijano-Evans. “Come January 20, everybody will reassess their positions in all kinds of asset classes,” he said. “This will be based on the actual policies and implementation. This is very important for emerging-market assets because right at the top of the list is the implication of the new policies for global trade.” (Srinivasan Sivabalan/Bloomberg)