Here’s Why Gold Will Shine Under Trump’s Regime

Nov 15, 2016 · 5 min read

Capital markets always react to the uncertainty. When they receive positive surprises, they exhibit rallies and with negative surprises, they erode investors’ capital. Until recently, equity and bond markets were relying on the predictions of the pollsters who were confident of the victory of Mrs Hilary Clinton. Many celebrities had vowed to leave the U.S. had Mr Donald John Trump won the presidential elections. More often, like markets, celebrities react disproportionately when they are sure about the outcome of some event. His (Trump’s) campaign “Make America Great Again” had received severe criticism from across the corners of the world, and not just in the U.S. His offensives against Latin Americans, in particular against Mexicans, earned him a bad reputation. Mr Trump’s political opponents had mocked him often for his lofty rhetoric.

Supporters of Democrats got excited when exit polls predicted that Mrs Hilary Clinton had a huge 85% chance of winning the U.S. presidential Elections. A detailed analysis presented by many experts was extremely convincing which made them even more confident about her victory.

But, in the end, Mr Trump had the last laugh.

The whole world tracks significant developments in the U.S. such as these, as they have a potential to change the face of the world, not only that of the nation alone. With Mr Trump becoming the U.S. President now, many experts feel that the uncertainty has gone up quite dramatically.

Before Mr Trump delivers on his promise to create more jobs for Americans, he might claim thousands of jobs in other economies. This may potentially damage the multilateral relations of the U.S., giving rise to uncertainty.

When the world is in a crisis-like situation and most other asset classes depict a depressed movement, one asset class usually shines. Yes, you guessed it right, gold is a safe-haven asset. Gold prices rallied when the outcome of the U.S. presidential elections came to hand. On the day of the announcement, stock markets across geographies opened in red and reported sharp declines. However, in the subsequent sessions equity markets found some base. On the contrary, gold, which had touched an eight-month high to cross US$ 1,300 mark after Mr Trump becoming the new president, declined sharply after the initial spike up.

This move has confused many investors as they are unsure about how gold will perform going forward.
Policies of Mr Trump are likely to have a far-reaching impact on gold prices in coming years. To understand the nitty gritty of the subject, you should first know where he stands on the economic, social and geopolitical policies. And, whether the fears of his opponents about his policies have any base.

The path to “Make America Great Again” goes through revisiting trade relations with many countries. In his June 28 speech this year, Mr Trump had said, “Our politicians have aggressively pursued a policy of globalisation — moving our jobs, our wealth and our factories to Mexico and overseas.” Such remarks have sent shivers down the spines of those countries which heavily depend on U.S. exports. And that’s not the end, his whims and fancies go much beyond this. On April 01, 2016 he shook the world when he twitted this — “We must build a great wall between Mexico and the United States!

Israel and Russia might benefit from Mr Trump’s hell-bent approach about certain cultural groups. This might give rise to geopolitical tensions in the Middle East and South West Asia.

If he walks the talk, which is unlikely given the complexities involved in making such radical decisions, many countries would feel the heat. Protectionist policies may create tensions between U.S. and its trade partners. Additionally, he wants countries that depend on the U.S. for their national security, to pay more for it. This may add to the worries of many countries. His hardline stance on certain races and religions may produce devastating effects in many parts of the world. On this backdrop, there are likely chances that the global economy may navigate through hot waters.

Going by his remarks on the subject, it seems, like any other Republican, Mr Trump is a staunch supporter of an aggressive fiscal policy and across the board moderation in taxes. In an interview with Reuters on May 18, 2016, Mr Trump had said, “I’m not a person that thinks Janet Yellen is doing a bad job… I happen to be a low-interest rate person unless inflation rears its ugly head, which can happen at some point.” Just before that, while speaking to the Wall Street Journal on May 09, 2016, he made clear his view on the taxation. He said, “My core beliefs are I want a major tax cut.

Generous tax cuts coupled with other aggressive fiscal policies might send commodity prices upwards, and the value of US$ might receive a blow — a positive for gold.

Moreover, he has openly advocated higher infrastructure spending along with the rationalisation of social security. But, he also remains optimistic that the U.S. shall be able to reduce its debt more quickly than many think it will take.

Taking cues from Mr Trump’s idea of making America Great Again, it wouldn’t be unreasonable to believe that, the world economy would always be on edge under his regime. In that sense, claims of his opponents do not appear baseless, unless Mr Trump softens his stance. His fiscal policies may not bode well for the US$. Both these factors may work in favour of gold and send the prices of the precious yellow metal northwards.

After reading this, if you have decided to jump the bandwagon and buy some gold, read this carefully. India has demonetized Rs 500 and Rs 1,000 currency notes. This move is likely to impact the sale of gold negatively since the most of the trade happens in cash. Lower demand from India may keep gold prices depressed despite other positives being at play.

Although gold is a hedge against inflation and protects you against the devaluation of Rupee against US$, you shouldn’t speculate on its movement as that may produce undesirable results, if your projections go off-target.

PersonalFN believes your exposure to the safe-haven asset should be in the range of 10% to 15% of your portfolio. You should accumulate as and when the prices fall.

To invest in gold, Gold Exchange Traded Funds (ETFs) and the Sovereign Gold Bonds remain the most reliable options.

Sound asset allocation rather than maximisation of return on your investments should be your aim. Personalised asset allocation plan that takes into account your financial goals and your risk appetite eliminates the risks associated with speculation of asset prices.

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