The Trump Trade: What Donald Trump’s Victory Means for Gold
Donald Trump’s emphatic victory in the presidential election had an instant impact on the price of gold in the hours after the polls had closed—it sank. But the longer-term impact of a Trump presidency is likely to be very different.
Gold’s initial election response was tied to reaction in the bond and foreign exchange markets. Bond yields spiked on the idea that President-elect Trump’s pledge to increase tariffs by 10-20 percent, and by 60 percent for Chinese goods, would be inflationary. In turn, those higher yields pushed up the U.S. dollar against major foreign currencies. Combined, higher rates and a stronger U.S. dollar are negatives for gold, as bond yields become relatively more attractive compared to a non-interest bearing asset like gold, and a strong dollar makes gold more expensive for overseas buyers, given that gold is priced in dollars in international markets. Gold fell three percent on the day after the election, dropping under $2,700 an ounce.
But after the knee-jerk reaction, analysts say gold is likely to be a strong performer during a Trump presidency. Policy analysts uniformly predict significantly higher budget deficits resulting from Trump’s planned tax cuts. That could cause a devaluation of the dollar and benefit gold. Moreover, gold stands to benefit if the president-elect does impose tariffs that drive inflation higher, as many economists predict, given that gold is a universally respected hedge against long-term inflation.Real Time Precious Metals Data Below
