Prices of precious metals have peaked and touched their highest ever levels post elections in the U.S. However, this may not be great news for those who have great expectations for the U.S stock markets because it is possible that the surge can be attributed to fears among the public about a market collapse.
Traditionally, gold has been a safe haven investment and people have switched to this precious metal whenever it has seemed risky to invest in other instruments like equity that are economy dependent. In particular, when there is expectation of a market slowdown, demand for gold tends to go up.
Record highs of market indicators gives rise to fears
It is believed that the current switch to gold comes after the Dow Jones and S&P 500 posted a series of highs in the recent times. This has led to fears about a possible quick fall for the markets. The markets were on an upward trend after the election of Mr. Trump to the Oval Office thanks to expectations that he would cut down taxes dramatically. Added to this was the confidence that Trump would take on some hard measure to boost the economy and give it further impetus to improve activity levels.
However, with no clear plans coming to fore yet, the markets seem to be hesitating as analysts remain uncertain. This, coming on the back of the indices posting record high appears to be a prime situation for an economic bubble burst and this is behind the surging demand for safe havens.
Market corrections expected
Ahead of the President’s address to the U.S. congress on 28th February, the markets and market players are gearing for some dramatic changes with far reaching consequences. This is underpinning the gold surge as many are hedging their risk with investments in this commodity. While there is still not much idea on what the President’s address could encompass, there is consensus that the market shave been soaring for too long for the trend to keep continuing. Whether there will be a sharp dip or a slower, more subdued one, it is not known but almost everyone agrees that a dip is inevitable in the future. It is Mr. Trump’s policy announcement that will determine what from the dip will take and until then investors are going to be playing it safe with gold, silver and other low risk investment avenues.