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Here’s how to hedge your portfolio against a Trump victory

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While the odds appear to be in Hillary Clinton's favor to win the upcoming presidential election, investors looking to play a potential Donald Trump victory might want to look to gold

A report from RBC Capital Markets using data from FiveThirtyEight showed that while there was a only a small correlation between the precious metal's price moves and Trump's odds of winning, RBC used a method called "peak-trough matching" to tease out a connection.

Specifically, gold has tended to rise when Trump's odds of winning rose above 40 percent, and fall when his chances dipped below 20 percent.


Boris Schlossberg, managing director of FX strategy at BK Asset Management, believes that yellow metal could make for a powerful hedge.

"I think gold will be one of the most active, reactionary instruments to a Trump win, because that will create a massive amount of volatility, a massive amount of uncertainty in global markets and in geopolitical terms," Schlossberg said Thursday on CNBC's "Trading Nation."

Gold is frequently seen as a safe haven asset — or what some term a "fear trade." Schlossberg's analysis is based on that a Trump victory could bring considerable uncertainty that would in turn lead to volatility, which could send gold prices soaring.

Indeed, beyond the connection between Trump's chances and gold prices, positive events for Clinton have helped stocks to rally, and volatility expectations to drop.

Clinton is ahead of Trump by 6 percentage points based on an average of major polls, according to Real Clear Politics, so the Republican nominee winning the election would come as a substantial surprise. FiveThirtyEight's "polls plus" model currently pegs the chance at about 16 percent.

Meanwhile, if the Democratic nominee does emerge the victor, gold could be in for some tough sledding.

Not only will the volatility-inducing event have failed to occur, but according to Cowen and Co.'s head of equity sales trading, David Seaburg, monetary policy under a Clinton presidency will be "lower for longer and she's going to stay with a dovish policy or encourage a dovish policy, if you will," he said on "Trading Nation."

Schlossberg, for his part, doesn't see gold as a promising core portfolio holding — only as a hedge against an unexpected electoral outcome.

Gold has been regaining its momentum recently after tumbling at the beginning of October. The metal is currently up almost 20 percent year to date.