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Impeachment Conflict Could Be Bad News for Markets, Good News for Metals

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Impeachment Conflict Could Be Bad News for Markets, Good News for Metals

By John McDonald 

Last year, oddsmakers were placing bets for and against President Donald Trump still holding his office by the end of this year. Now, with House Speaker Nancy Pelosi’s latest commentary on impeachment reading as an unequivocal “no-go” despite telling senior Democrats just last week she would “like to see [the president] in prison,” it looks like the president will sit securely in the Oval Office at least until the end of 2020.

However, even if Pelosi and her party were to change course again, precious metals investors could sit squarely on their portfolios and watch the chaos unfold with at least a modicum of the security themselves.

Political Turmoil Tends to Roil Wall Street

Historically, impeachment has not been good for Wall Street, at least in the very short term. When former President Richard Nixon resigned in the wake of Watergate, the U.S. veered into a recession afterward.

However, noted Capital Economics economist Oliver Jones, in that case, the S&P 500 had already been “under pressure since January 1973.” When former president Bill Clinton was actually impeached, the long- and even mid-range effects on the bull market in full effect at that time were quite small although the market initially reacted negatively.

In fact, the S&P 500 climbed 30 percent from the time the scandal broke and the time the articles of impeachment were defeated in the Senate about a year later.

“A viable impeachment would likely have at least a short-term impact on the market,” Jones said, but he added it is more likely that trade policies will affect Wall Street than impeachment. Now that the speaker has effectively ruled out impeachment, it seems more likely than before that markets will remain volatile, which, as precious metals investors know, tends to be good for gold values.

Precious Metals and Market Volatility

Any time political turmoil puts investors in a tentative position, precious metals tend to gain value. In fact, at present, many analysts are anticipating the emergence of a “safe-haven” investment surge in this asset class, thanks in large part to surging stock values.

“As a barometer of fear and uncertainty in markets across all asset classes, gold could be in a position to surprise on the upside over the coming months given the current state of the world,” wrote Seeking Alpha analyst Andrew Hecht in early June.

Mid-June, gold prices actually dipped slightly, possibly in response to optimism about a viable U.S.-China trade deal. Spot gold fell about 0.1 percent. However, with campaign season gearing up for a historic no-holds-barred series of verbal shootouts between 20-odd democrat candidates and the incumbent Republican president and the stock market closing in on an all-time high this week, safe-haven investors are likely to shore up any Wall Street “bets” with precious metals “safeties” as well.

Just one day after gold prices fell with rising trade optimism, they were back up and slightly higher than they opened the day prior. Given that gold has historically been a “barometer of fear,” as many analysts call it, the looming political turmoil coupled with a market surging into uncharted territory should drive that barometer upward as well.

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