Don’t look now! Gold is crushing the stock market in 2017
Published: Jan 12, 2017 9:42 a.m. ET
From stock shill MarketWatch no less!
Gold is up 4.3% in the early part of 2017
Perhaps one of the clearest signs that a rally inspired by President-elect Donald Trump is starting to stall is shiny and yellow and is outperforming other assets by a healthy margin.
Gold GCG7, +0.62% is trading near $1,200 an ounce and are up 4.3% so far in 2017, compared with a tepid gain of 1% for the Dow Jones Industrial Average DJIA, -0.59% and a 1.6% advance by the S&P 500 index SPX, -0.48% Not even the standout Nasdaq Composite Index COMP, -0.63% which racked up its fifth straight record close on Wednesday for a year-to-date climb of 3.4%, has managed to outstrip gold’s returns.
Of course, the market is only about eight trading days into 2017 and things could pivot quickly. After all, stocks began 2016 with the worst start to a new year in history before regaining their footing and scooting to new records.
But what appears to be a stall out for equities—though not an outright reversal—highlights investors’ apparent reassessment of some of the factors that had accelerated a rally in equities after Trump won the U.S. presidential election on Nov. 8. In theory, the prospect of economic growth and rising inflation are bullish for the dollar, stocks, but bad news for assets like gold, which doesn’t bear a yield and is priced in dollars.
“I am not surprised by the reversal we have seen in relative performance between gold and US stocks so far in 2017. The big rally at the end of last year was partly driven by speculation on what Donald Trump could do for the economy as president and part due to a scramble by fund managers to get cash off the sidelines and into the market by year-end which is now over,” said Colin Cieszynski, chief market strategist at CMC Markets. “It also seemed to me like the Dow was getting drawn toward 20,000 as though it was caught in a tractor beam,” he said.
But, the ebullience that lifted stocks to fresh highs, bolstered by the notion of fiscal stimulus, tax cuts and a loosening of regulations, has been replaced by a desire for details and doubts that the president-elect can deliver the goods.
Those factors may be offering gold room to run higher, at least in the near term.
A retreat by the U.S. dollar, which has steadily pulled back from a more-than 14-year peak, as measured by the ICE U.S. Dollar Index DXY, -0.65% and lower moves for benchmark Treasury yields, with the 10-year Treasury note TMUBMUSD10Y, -2.25% at 2.33% from a high of 2.61% in mid December, underscoring a slowdown in a selloff for government bonds. Yields fall as bond prices climb.
Recent buying in gold and maybe bonds can be attributed to minutes from the Federal Reserve that raised questions about the pace of interest-rate hikes in 2017. The market action suggests
It may be way too early to call the Trump rally over. After all, stocks are sill boasting gains and the Dow is on track to hit the 20,000 milestone, but it appears that there are some signs that the notion of Trump being a slam dunk for stocks isn’t a certainty.
