Risk-Off Sentiment Coming Back on the Table with Trump Politics

There’s some political risk on the table after reports of a memo written by former FBI Director James Comey indicating that President Trump asked him to end the investigation into Trump’s former national security adviser Michael T. Flynn. That in mind, this could potentially result in the impeachment of the President, and this uncertainty caused the markets to sell off and risk-off trading to come back into play. Moreover, there were reports that Trump recently welcomed two Russian diplomats into the Oval Office, and he may have revealed confidential information to the diplomats. Now, when there is political risk on the table, there are two assets that investors may flock to, and those are gold and U.S. Treasury securities. That in mind, here are some exchange-traded funds (ETFs) that investors are focused on following this news.

SPDR Gold Trust

The SPDR Gold Trust (NYSEARCA: GLD) is one of the most-widely followed gold-related ETFs, and traders and investors have already been using this ETF to hedge their portfolios or to speculate on continued risk. The SPDR Gold Trust provides investors with exposure to the price of gold bullion, without the need to hold or take delivery of gold. That in mind, when gold prices rise, GLD should follow. With President Trump undergoing scrutiny as of late, there could be some added volatility to the equity market, and investors may focus on securities related to the precious metals, such as gold.

If you look at GLD on the daily chart below, you’ll notice how it sold off due to risk-on sentiment following the French Presidential election.

Source: TradingView

However, thereafter, the precious metal began to rebound, causing GLD to rise, which could be attributed to the added political uncertainty surrounding President Trump, China and Russia.

Market Vectors Gold Miners ETF

The Market Vectors Gold Miners ETF (NYSEARCA: GDX) is another gold-related exchange-traded fund that could potentially rise in response to the reports regarding President Trump. Although GDX is not a pure play on gold, it tracks the general price and yield performance of the NYSE Arca Gold Miners Index, which seeks to track the overall performance of companies in the gold mining industry. Now, when gold prices rice, GDX tends to follow, and it could potentially serve as a trading opportunity.

According to trader Jason Bond, “If you look at the performance of GDX and GLD, there seems to be some correlation between the two assets. GDX could provide an opportunity to hedge against or speculate on political risk that might occur.”

If you look below, you’ll notice GDX on the daily chart, which is quite similar to the performance of GLD.

Source: TradingView

The iShares Barclays 20+ Year Treasury Bond ETF 

The iShares Barclays 20+ Year Treasury Bond ETF (NASDAQ: TLT) could also rise in times of political uncertainty. TLT provides exposure to U.S. Treasury bonds with remaining maturities greater than 20 years, and the ETF is often viewed as a safe haven.

Some traders also have a different view on TLT. For example, when interest rates rise, bond prices fall in the short term. However, over the long-term, fund managers could reinvest cash flows at higher rates, which could offset the short-term gains. Despite the Fed potentially raising rates in its June meeting, TLT could still rise with the political uncertainty surrounding Trump.

The Bottom Line

Risk-off sentiment could be coming back into play with the recent reports of Trump and Comey. That in mind, some safe havens, such as GLD, GDX and TLT could potentially rise and help investors hedge their portfolios.

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