Gold Under Trump

Financial markets have already begun to position themselves for what could be a very volatile period ahead for gold prices. So, will it be challenging, or may we see an aggressive gold "Trump Rally"? Past administration policies and the uncertainty that often surrounded his statements weighed heavily upon the performance of the gold market. Analysts and investors alike are turning their attention to gold as they position themselves for what could be a period of heightened volatility and economic adjustments.

With his broad range of "America First" policies, Trump has made it clear he will levy new tariffs on imports and increase domestic production of resources while reevaluating current trade deals. These steps may bring in temporary economic hardship for certain companies in the United States and trickle down to affect the world economy. On the other hand, massive tax cuts and deregulation could supercharge the U.S. economy.

It is a fact that geopolitical instability generally works in favour of gold. If the policy moves by Trump result in tensions with major trading partners like China and the European Union, there could be an uptrend in the price of gold as investors move to safe-haven assets. Economic uncertainty, coupled with unpredictable foreign exchange rates, is likely to increase investment in the precious metals market.

In the case of tariffs, Australia may be hit hard as it is so economically intertwined with China. If his last presidency is anything to go by, every tweet about tariffs on China was able to knock the legs out from under the ASX. This means that Aussies might need to be on high alert about stock market investments.

Donald Trump has also promised increased infrastructure, healthcare, and military spending. Programs of this nature involving heavy government spending have, in the past, created upward pressures on inflation which also tends to be beneficial for gold. With more inflation, the Fed would be under pressure to keep its interest rates low to avoid tapering down the growth in the economy. Low interest rates are normally unfavourable for the dollar which would increase the attractiveness of gold as an investment.

If the Fed does act to counteract any inflation, however, it may raise interest rates, which generally has a cooling effect on gold prices. Balancing these two possibilities will be critical, as any signs of aggressive monetary tightening by the Fed could reduce demand for gold.

During Trump's previous term in office, relations with China were especially tense, leading to a succession of trade wars. Trump has already said he will return to a more hardline trade policy, particularly toward China and Mexico, adding to the prospects of a more unpredictable economy. Trade disputes tend to weaken currencies, and a softer U.S. dollar is normally beneficial for gold, which is now cheaper for buyers in other currencies.

Trump Rally?

Trump has also had strong words with the Federal Reserve over monetary policy management, and any changes in Fed independence would further add to market volatility, which could propel gold higher. During his previous term, he suggested that a softer dollar would favour U.S. exports, and a weaker dollar tends to Favor the price of gold, as this makes it cheaper for foreign buyers.

Aside from the post-election dip, investors seem to be preparing for a "Trump rally" in gold, if recent flows into gold ETFs and rising demand for physical are any guide. Indeed, many market participants have been hedging their portfolios from potential pitfalls stemming from Trump's policies and positioning gold as protection when markets turn turbulent. If his administration's policies are no different from those of his predecessors, the gold will also rediscover its status of being a top safe haven investment in periods of political and economic instability at least as perceived by the mass media and investors.

However, as Trump heads into his second presidency, all eyes will be on his policy decisions and what those may mean to the economy. If the risks of inflation, resumed trade wars, and the dollar in distress materialise, gold could go on a serious rally. In contrast, if the economy keeps ticking without incidents, the Fed taking a tough stance on inflation could temper gold’s upward momentum, slowing its rise to a more typical pace.

The coming months are going to be interesting, with investors advised to closely monitor the economic indicators and policy announcements. The best way to do this during his last presidency was by watching his Twitter account. If he follows through on devaluing the U.S. Dollar and being tough on trade, then gold could see a significant lift in its price in the coming years.