Politics is Moving the Markets Again, All Eyes on Gold

It is no longer news that some political events happening in Washington, Europe, and the rest of the global political landscape often has huge effects on the financial markets. Interestingly, the effects of politics on the financial markets tend to have the biggest shockwaves on the stock, forex, and  commodities market. In the last couple of days, Washington has been agog with news about the latest scandal rocking the presidency of Donald Trump.

The New York Times report that President Trump’s eldest son, Donald Trump Jr. has revealed messages indicating that he was willing to accept “very high level and sensitive information” from a Russian lawyer “part of Russia and its government’s support for Mr. Trump”  during the build up to the 2016 U.S. presidential elections. This piece looks at how the latest political scandal is rocking the financial markets with a special emphasis on how gold is faring and how the yellow metal is likely to fare going forward.

Here’s how the latest Washington scandal is influencing the price of gold

The news of the latest scandal caused the dollar to fall as investors lost short-term faith in the ability of the U.S. government to stay focused on its economic goals. The U.S. Dollar Index, which tracks the greenback against a basket of currencies declined from 96.174 to 95.592 when the documents of the correspondence was released to the public. The Yen strengthened against the dollar rising from 113.38 to 114.45. The Dollar also declined against the Euro as the Euro climbed from under $1.14 to $1.1483.

Blake Vasquez, an analyst at ECN Capital observes that “gold also benefited from the scandal in Washington as investors found compelling reasons to put money to safe haven assets ahead of potential political uncertainty.” The yellow metal climbed from a trading price of $1,208 per ounce to $1,220.35 an ounce and analysts expect the bullion to climb higher as the drama continues to unfold in Washington.

Analysts at Citi believe that gold has increased upside potential ahead because “we believe the risk of impeachment proceedings is now higher than before, even if still not our base case.”

Here’s why the latest Trump scandal is moving the markets

Donald Trump’s presidency seem to have developed a reputation for jumping from one scandal to the next – of course, one could make a case that the media has a penchant for sensationalizing every tidbit and blowing it out of proportion. However, one of the biggest headwinds that Trumps presidency has been facing has to do with allegations that Trump enjoyed Russian interference to win the presidential election against Hillary Clinton.  

Hence, it made sense that Washington was jolted when news broke that Donald Trump Jr. did have correspondence with Russia. The younger Trump has maintained that the correspondence was opposition research and that “in retrospect, I probably would have done things a little differently.”  He has also maintained that Trump was not privy to such correspondence and that Russia did not provide any such information.

However, the news of the scandal has definitely forced the Trump administration into a place of weakness and the presidency would want to hold off pushing its economic plans until the storm subsides.