Investment bank Goldman Sachs made waves in late 2016 when lead equity strategist Peter Oppenheimer advised investors to look at “gold as a hedge” against then president-elect Donald Trump’s economic agenda. Many in the financial media agreed. Surely, the incoming administration would be good news for alternative assets and poor for traditional equities. Those prognostications didn’t play out very well during Trump’s first 100 days.
Gold During Trump’s First 100 Days
Global equity markets showed resiliency in 2016 and early 2017 despite enormous political turmoil in Europe and the United States. Much of this blame lies at the feet of the Federal Reserve and the Treasury, which continue to support (directly and indirectly) bloated valuations for publicly traded assets. Consequently, gold and silver entered 2017 above 2016 levels but below 2015 levels.
Fortunately for gold investors, the stability of equity markets didn’t mean stagnancy for metals. As the graph below shows, the first 100 days of the Trump administration proved profitable for those owning gold.
Past performance is not an indication of future results.
The recent rise of gold is not particularly unsurprising. President Trump appears besieged by the media, by the Justice Department, and by foreign powers. His staunch critics are only assured by his troubles while his supporters lose patience with his inability to deliver campaign promises. In other words, gold is glittering at uncertainty, but not the same uncertainty many foresaw six months ago.
Trump Breeds Uncertainty—but Not Like the Pundits Expected
President Trump settled into the White House as a promising maverick (or a threatening one, depending on your affiliation) who would shake up Washington. Pundits inside and outside the beltway believed that equity markets and job creators would balk at the uncertainty of Trump’s radical policy changes. Instead, Trump initiated or continued many policies that he openly criticized as a candidate. While many expected Trump to confuse markets, perhaps the most surprising aspect is how conventional his policies are. Consider the following shortlist of Trump’s reversals since the campaign trail:
- Launching military strikes against Syria after decrying past administrations for doing the same
- Initiating military strikes without asking for Congressional approval after decrying past administrations for doing the same
- Announcing it won’t release visitor logs for the White House after promising transparency and criticizing past administrations for hiding information
- Refusing to confront China on currency manipulation charges despite claims to the contrary seven months earlier
- Asking Congress for $1 billion to fund a wall on the U.S.-Mexico border after promising that the Mexican government would pay for it.
- Supporting a March 2017 bill that only replaced certain provisions in the ACA after saying that full repeal and replacement of the Affordable Care Act would take place as a top priority in his administration
- Holding a variety of positions on NATO, including NATO as “no longer obsolete,” despite calling the NATO alliance “obsolete” on the campaign trail, and that the United States will continue to support Article 5 of the NATO charter only days after refusing to do so
- Indicating that artificially low, Fed-stimulated interest rates were creating “very false” signals for the economy before turning about-face and supporting low-interest rates
- Telling a Wall Street Journal reporter that “actually, [Ex-Im Bank] is a very good thing” after excoriating the Ex-Im Bank on the campaign trail
What does this all mean for gold? Uncertainty, no matter the source, makes for difficult business forecasting. In turn, this makes companies defensive and less likely to expand. Investors recognize this and either purchase less equity or lend less money (or, if prospects are really bleak, investors will sell off). The result is a weaker equity market, weaker bond market, and better prospects for haven assets.
Gold Bullion as Stalwart Against Politics, Economic Turmoil
Gold remains the most popular precious metal for commodity investing, both in the United States and internationally. Since many gold bars and coins qualify for Self-Directed IRA inclusion, investors can protect their portfolio while staving off the IRS, too.
You can own real, physical gold bullion and proof coins and store it in a tax-advantaged retirement vehicle. American Bullion can discuss your options and help you every step of the way.