Gold is showing impressive resilience to an unfavorable macroeconomic environment. Does it mean that investors are buying gold as a hedge against the risk of Trump’s impeachment?

As we repeated, the macroeconomic outlook seems to be rather bearish for the yellow metal. The pickup in real interest rates and the U.S. dollar are usually negative drivers in the precious metals market, but gold has shined this year so far. One of the reasons for such a development is the uncertainty about Trump’s policies. After his conciliatory acceptance speech in November, the price of gold plunged. However, the subsequent aggressive diplomacy, chaotic decisions and conflicts with the press boosted gold prices. There is also a risk that the “investors’ anticipation of a boost to earnings from a cut in corporate taxes or more expansionary fiscal policy (…) might not materialize”, as was pointed out in the recent FOMC minutes. Some analysts even suggest that gold has been pricing in Trump’s impeachment. Is that true?

Well, indeed, the worldwide Google searches for the term ‘Trump impeachment’ skyrocketed in January, as one can see in the chart below.

Chart 1: The price of gold (yellow line, left axis, London P.M. Fix, weekly averages) and Google searches for ‘Trump impeachment’ (red line, right axis) over the last 12 months.

Gold price and searches for 'Trump impeachment'

The rise clearly coincided with the jump in gold prices. However, the correlation is far from being perfect. The searches peaked at the end of January, while the price of gold continued its rally. However, the surge in searches for “Trump impeachment” reflects the general uncertainty about the new administration, which is supporting the shiny metal. One of the risks associated with Trump is that he could be impeached, because of his alleged ties to Russia and possible conflicts of interest with his businesses. That risk is very low, as the Congress is dominated by Republicans (but do they really want Trump as president?). However, investors tend to overweight very low probability events, which may partially explain the recent rally in gold prices.

The bottom line is that the yellow metal seems to be diverted from its fundamentals due to political uncertainty about the new administration. Markets are now hyper-focused on Trump. The worries about his actions are growing, replacing the previous euphoria. Investors are worried about Trump’s aversion to a strong greenback and that he may not deliver the tax cuts, because of an impeachment, for example. Hence, it seems that unless Trump softens his stance or investors get used to it, gold will be supported.