Why Gold Is the Ace Up Trump’s Sleeve
Trends are born, they grow, mature, reach old age and die…
The Donald Trump, businessman/reality show star turned President of the United States trend has just been born.
I’ve never seen anything like it.
Never in modern history has the nation stood so divided and nations across the globe so alarmed following the election of the leader of the world’s largest economy and most powerful military.
And with each passing day, social tensions rise, equity markets tremble and geopolitical uncertainty grows with each new executive order, accusation, proclamation and tweet.
People are taking to the streets.
Immediately following Trump’s inauguration, the Women’s March of nearly five million women and men across America and throughout much of the Western world took a stand, vowing to protect ‘our rights, our safety, our health, and our families…and that women’s rights are human rights.’
Just a week later, following Trump’s executive order to restrict immigration into the US from seven Muslim-majority countries, mass demonstrations spontaneously erupted across the US.
From Silicon Valley to Wall Street, CEOs condemned Trump’s travel-ban directive. In response, equity markets shuddered and gold prices rose. The Wall Street Journal wrote on 31 January: ‘Travel Upheaval Sets Back Stocks. U.S. stocks stumbled, sending the Dow Jones Industrial Average in its worst day since the election.’
It’s sent the markets into frenzy…
Gold Price Jumps Up
But gold spiked some $15 per ounce, gaining more than 5% in January, its best month since June 2016 (and the Brexit circus).
Assess the impact of Trump’s tough stance on immigration and growing concerns of trade protectionism…
Consider the implications of White House accusations that China is purposely devaluing its currency.
Consider the implications that Germany is using a ‘grossly undervalued’ euro to ‘exploit’ the US, whose strong dollar makes American-made products more expensive to export…
…and you can clearly see why stocks lost momentum and gold prices rose as tensions built.
But when you go beyond the cause-and-effect, one theme emerges. As a New York Times headline read, ‘Trump’s Unpredictability Makes Foreign Leaders Wary’.
On Tuesday, European Council President Donald Tusk wrote in a letter to European leaders that ‘worrying declarations by the new American administration all make our future highly unpredictable,’ and that there should be no surrender ‘to those who want to weaken or invalidate the transatlantic bond.’
Uncertain times. Wary foreign leaders. Protests in the streets.
It may be early in the life-cycle of the President Trump trend, but the outlook is clear: This is good for gold. Gold is the ace up Trump’s sleeve.
Considering the unprecedented socioeconomic and geopolitical fear and uncertainty levels associated with the Trump White House, I maintain my forecast of a limited downside risk for gold and a strong upside potential during this administration.
And, of all the world’s currencies and commodities, gold outshines them all as the ultimate safe-haven asset in times of high anxiety, deep concern, social unrest and geopolitical instability.
Trends don’t lie. And this one shines golden.
Until next time,
For Markets and Money, Australia