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Wednesday, August 9, 2017

Political Woes to Heat Up Gold and Bitcoin

Political uncertainty and elevated risk to increase appetite in safe-haven investments.

Gold and bitcoin ready to heat up

Safe-haven investments shine in times of uncertainty and elevated risk. As TheStreet's David Yoe Williams points out, for U.S. investors, there has been no shortage of either in recent times.

Yoe cites domestic issues as being the most immediate concern, with the publicized back-and-forth over Obamacare taking center stage. Republican Senators have neither managed to repeal the Affordable Care Act nor find a replacement for it, a problem which will have ongoing ramifications for the U.S. economy.

Aside from the growing U.S. debt ceiling, another point of concern is the growing perception that the Trump administration isn't as efficient as many had hoped it would be. Yoe claims that this could cause a significant downturn in the stock and bond markets, both of which benefitted from the promise of an economic recovery, or the "Trump Bump".

International issues are increasingly becoming a concern as well, with recent events putting more pressure on an already strained relationship between the U.S. and Russia. There's also risk coming from Europe and China – both face an increasing amount of debt, and both will soon host elections that could significantly shake up their politics.

Many people are concerned that North Korea is a ticking time-bomb, with the country continuing to make subtle threats in the form of showcasing its offensive might. The Trump administration seems content to respond to force with force, which would put the markets in turmoil and increase the appeal of safe-haven assets.

Beyond politics, another current hot topic for the financial markets are cryptocurrencies. Recent ruling by the U.S. Securities and Exchange Commission show that the government is starting to take them seriously. It's clear that investors are looking for a safe-haven commodity outside the monetary system because not only are they note closely tied to economic and geopolitical issues, but they are also able to provide anonymous transactions away from government scrutiny.

As popular as cryptocurrencies might be getting, Williams notes that the precious metals market looks ready to outstrip them. After all, despite their touted benefits, cryptocurrencies bring with them a significant amount of volatility and could be the most unpredictable out of any asset.

Precious metals can provide a safer alternative, which is ideal when talking haven assets whose primary purpose is protection. Gold has gained 9% this year with silver posting a 3% gain during the same period; by all accounts, this appears to be the beginning of a positive trend in both markets. As Williams puts it, the "gold standard" protection that these metals offer will continue to be highly valued in an environment where certainty seems less and less available.