With Donald Trump’s return to the White House, many investors are feeling reassured about economic policies they believe will be pro-business and growth-oriented. If you have been considering purchasing gold but are holding off to see how things pan out after President Trump returns to office, it is essential to take a deeper look at the bigger picture. History, economic trends, and market fundamentals suggest gold will remain a robust and strategic asset, even under a second Trump administration.
Gold’s performance is not determined by which party is in office
Gold performed well this century under both Republican and Democrat administrations, including a 53% return during President Trump’s first term. Fellow Republican president George W. Bush presided over a stunning 215% return, while Democratic presidents Obama and Biden held office during returns of 53% and 37%, respectively.
If you understand the reasons behind gold’s consistently strong performance, it becomes clear as to why gold doesn’t care who’s in office and why there’s a very good chance of continued strength.
Inflation, Monetary Policy, and Tariffs
With stronger economic growth often comes higher inflation. High inflation is the primary reason why the Federal Reserve raises rates to slow down an economy. Currently, the Federal Reserve and most central banks around the world are in the process of cutting rates in the face of weakening economies.
Additionally, President Trump has stated plans to increase tariffs on imported goods. While tariffs may lead to a stronger and more robust economy in the long term, the United States can’t start producing the things we’re used to importing overnight. Most economists believe this will lead to higher prices until we can replace these imported goods with our own production.
Lower rates in a strengthening economy and potential effects of tariffs are a recipe that may lead to higher inflation in the years ahead.
Government Debt and Deficits
The national debt has increased under every administration since Calvin Coolidge, and that trend is projected to continue. President Trump approved $4.8 trillion of new borrowing during his first term, as well as an additional $3.6 trillion in COVID-related spending. Penn Wharton projects that President Trump’s proposed tax cuts will increase the federal deficit by $5.8 trillion over the next 10 years. While it is hoped that these cuts will stimulate economic growth and reduce deficits in the long term, this will continue to add to the already nearly $36 trillion-dollar national debt.
Mandatory spending on programs such as Social Security, Medicare, and Medicaid, plus the interest on existing national debt, make up around 75% of national spending, making significant spending cuts nearly impossible for any administration.
