Regardless of your voting stance come November 8th, could a Donald Trump administration drive up the gold market?
This presidential election is one of extremes. There aren’t a whole lot of undecideds left, and many of the nation’s voters are polarized toward their preferred candidate. The Dems have their candidate, the Republicans theirs. But for those who feel a Trump administration could spell doom for the nation, one important consideration to make is how a Trump win would potentially affect the price of an ounce of gold. Let’s consider the possibilities.
“When paper money systems begin to crack at the seams, the run to gold could be explosive.”
— Harry Browne
With gold up about 20% in valuation this year, investors and speculators are intimately aware this election cycle could dramatically affect gold prices, and many are currently taking a bullish approach to the gold market. If Trump were to win, many feel that his aggressive approach to international diplomacy and trade matters could spark serious political unrest. If one thing has been proven true over the years, gold tends to rise in value when confidence in the economy or geo-political systems is low.
Another concern is Trump’s basic economic plan could fundamentally weaken the United States economy, as his policies have been refuted by numerous respected economists as irresponsible, unrealistic, and possibly damaging to the domestic and global economy. His policies are often regarded as counter-productive and misguided, and may potentially lead to uncertainty in the market – or even a full-blown meltdown. Serious uncertainty could drive the price of gold sky high.
While the economy right now is soft in general, his plans could amplify the world’s concerns over the direction of the US economy. A leading strategist at Dutch bank ABN Amro indicated a Trump victory over rival Hillary Clinton could push gold prices beyond $1,850 an ounce. It is currently trading at just under $1,300 an ounce, as of late October 2016.
Gold is highly sensitive to actual, measurable economic indicators, as proven by its performance during President Obama’s second term. From the years 2013-2015, the output gap, which is the basic difference between the economy’s maximum potential output and the current timeframe’s actual output, was improved when compared to earlier moments in Obama’s term as President. This, combined with a boost in US real yields and a spike in the value of the US dollar, led to gold prices slipping lower rather quickly. Remember that from 2001-2005 – during George W. Bush’s first term, the output gap was weak (-2.0%) and gold prices rose by 61.0%.
With Trump’s approach to the economy being quite different than what we’ve seen before, uncertainty may be an understatement. Investors, especially those with serious money to spend, are behaving rather bullish when it comes to gold. The expectation seems to be that a Trump administration will equate to a sharp rise in gold prices, while a Clinton win will spell a more modest lift. Either way, gold seems to be poised for gains over the next four years.
Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.