After a dramatic campaign, Donald Trump garnered 62 more electoral votes than Hillary Clinton to become the 45th president of the United States. Now everyone's wondering…is this “Brexit for America” or a “time for America to bind the wounds of division,” as Trump said in his first address as president-elect? In truth, only time will tell whether or not Trump can unify a nation that's cracked along socioeconomic, racial, and political boundaries. Many gold holders are adopting a bullish outlook, though, as Trump could expand the fiscal deficit with his plans to rebuild the country's infrastructure, and uncertainty over the implications of his election could make it more difficult for the Federal Reserve to raise interest rates. When it comes to gold and other safe haven assets, gold could be set to shine bright under a Trump administration given that global political risk remains high, the Fed remains on alert, and inflation could be set to increase.
Global political risk remains high in advanced economies
There are a host of global unknowns that could make for a risky international economic environment in the coming years, regardless of who sits in the Oval Office. Abroad, there's no clear roadmap for Brexit and the pound is suffering. Output in U.K.'s construction sector is at its weakest level of four years, banks are threatening leave, British tourism is experience a post-Brexit slump, and no one knows how the U.K. will actually go about their “exit.” The more turmoil there is abroad, especially with key allies like the U.K., the more likely it is that the Fed will keep interest rates low and gold will see gains.
Turmoil doesn't stop in the U.K. though. Italy will be voting on a major constitutional reform on December 4th and Matteo Renzi, the country's prime minister, says that if the vote goes against him, he'll resign. Renzi's departure “could pitch the country back into political disarray and spark a wider crisis in the E.U. economy,” reports The Economist. France, too, could see some big changes come 2017. In about six months, they'll face a presidential election of their own, one that could send the country down a road that's resistant to globalization, fond of economic protectionism, and skeptical of immigrants.
In short, it's difficult to make predictions about the impact of major policy changes and global events before they happen. “Unknown unknowns [are] sure to present themselves as Trump works to find his footing…all bets may be off, but turbulence ahead remains a safe one,” writes Fortune. As history has shown, turbulence can be good for gold.
Fed may face major shakeup, but shift in interest rates unlikely
Trump seems to have little faith in the Fed and he admittedly isn't a fan of high interest rates. Though some gold holders are worried that today's robust-appearing economy will encourage the Federal Reserve to raise rates this December and at a faster pace next year, U.S. futures traders predict otherwise. “U.S. rates futures imply traders see only a 36 percent chance of the Federal Reserve raising interest rates next month, based on Reuters data, which should support further gains in gold,” writes CNBC.
Also, Trump has described himself as “a low-interest-rate person.” His success as a real estate mogul was partially dependent on his ability to draw heavily on other people's money. “He has promised to deliver stronger economic growth, a goal that could be inhibited by higher interest rates. Politicians — their careers dependent on short-term economic performance — generally favor low rates, even at the expense of future inflation,” writes The New York Times.
“We see real global rates — not just in the U.S. but in Europe and Japan — remain low or even negative and we see gold and silver perform positively on average,” says Maxwell Gold, director of investment strategy for ETF Securities. Even if the Fed does raise interest rates in December, “long-term after the Fed rate hike, gold will do fairly well,” adds Bart Melek, head of commodity strategy at TD Securities. Either way, “the market is still flying blind in response to what are really unknown economic policies. Overall the fundamental and macro case for gold hasn't changed much,” says Gold. Ultimately, he believes that the Fed won't be able to keep up with inflation.
If Trump wanted to, he could shake things up at the Fed as early as February 2018. Yellen's term as Fed chairwoman ends early February 2018 and Stanley Fischer's term as vice chair ends in June 2018. Trump could fill these vacancies and his nominees would control a majority well ahead of the 2018 midterm elections.
“Gold is the only de-facto currency that cannot be debased by printing more of it…There's a reason why gold has outperformed every major currency throughout history,” says the World Gold Council. Gold is a readily available source of personal financial protection and a physical form of wealth. Call 1-844-307-1589 to explore your gold coin options and lock in your price over the phone today.
With uptick in inflation, gold could seriously outshine bonds
Bond holders are jumping ship in advance of Trump's White House arrival. “They believe Trump's victory, coupled with his party's control over both houses of Congress, will usher in an era of increased spending on infrastructure, unprecedented tax cuts, and protectionist trade policies—all of which will lead to increased inflation,” reports Time.
When inflation rises, bonds suffer but gold benefits. An increase in fiscal spending to rebuild roads, bridges, and airports, coupled with vast deficit-spending in the form of tax cuts could lead to more money circulating within the economy.
“The inflationary consequences of a huge spend on infrastructure, combined with whopping tax cuts will [make] going anywhere near the U.S. bond market feel like a bad idea,” says editor-in-chief of MoneyWeek. Likewise, “selling bonds and buying gold…would be a good hedge against future inflations,” suggests a team of Goldman Sachs analysts. “We continue to like gold as a hedge in the portfolio context,” they say, and “it has hedged risk well today, being up more than 5% at one point.”
A return to a gold-based monetary currency is more likely than before
A personnel shakeup within the Fed has many congressional Republicans looking to revamp the Fed even further. “It's way past time for the Fed to commit to a credible, verifiable monetary policy rule, to systematically shrink its balance sheet and get out of the business of picking winners and losers in the credit markets,” says Representative Jeb Hensarling, chairman of the House Financial Services Committee.
In addition to advocating for increased transparency, some Republicans are looking to impose tighter constraints on interest rates and some have even spoken of a return to the gold standard. Such a return would inextricably tie the dollar to the price of gold, limit the Fed's ability to print money, and in theory, limit inflation.
Trump is admittedly a fan of the gold standard. “Bringing back the gold standard would be very hard to do, but, boy, would it be wonderful. We'd have a standard on which to base our money,” he said in an interview with The Scene earlier this year.
“A Trump win is still essentially bullish for gold”
Ultimately, how assets like gold perform will depend on to what extent Trump's proposals come to fruition. Until then, a high level of uncertainty will likely keep gold afloat. “A Trump win is still essentially bullish for gold,” argues Mitsubishi analyst Jonathan Butler, as the new president-elect is bound to keep the world on the edge of its seat. Regardless of who reigns the White House, one thing is clear: the future is filled with unknowns. Bring home a hard asset and a tangible means of safeguarding your wealth. Bring home gold. Buy gold coins online and call 1-844-307-1589 to lock in your price over the phone. Account Executives are standing by to take your call.