Fed and Trump shooting boost gold — what you need to consider

Gold prices surged this week to a record high of $2,465 per troy ounce amid prospects of Federal Reserve interest rate cuts and the potential return of Donald Trump to the US presidency.

Savvy investors around the world are clearly feeling it’s time to bolster their exposure to gold. Should you be doing the same?

The Power of policy shifts

The Federal Reserve’s anticipated interest rate cuts are a significant catalyst for gold’s recent rally.

Last week’s weaker-than-expected US inflation data heightened expectations of lower borrowing costs. Historically, lower interest rates reduce the appeal of yield-bearing assets, shifting investor focus to non-yielding assets like gold.

This dynamic is currently at play, making gold an attractive proposition for those seeking to hedge against the uncertainty of fluctuating interest rates.

The Trump factor: game changer?

Adding fuel to the fire, the recent assassination attempt on Donald Trump has significantly boosted his odds of securing a second term in the White House.

Trump’s economic policies, characterized by tariff impositions and tax cuts, are expected to widen the US budget deficit and escalate geopolitical tensions.

These factors are likely to stoke longer-term inflationary pressures, further enhancing gold’s allure as an inflation hedge. Investors are increasingly viewing gold as a shield against the economic unpredictability that a second Trump presidency might bring.

Geopolitical stability is a rare commodity in today’s world. The attack on Trump underscores the fragile state of global politics, reminding investors of the ever-present risks that can disrupt financial markets.

Gold’s intrinsic value as a safe-haven asset is unparalleled during such times. Its ability to retain value amidst political upheaval and economic uncertainty makes it a critical component of any diversified investment portfolio.

Inflation hedge

Inflation erodes purchasing power, and traditional assets often struggle to keep pace with rising prices.

Gold, however, has consistently outperformed during inflationary periods. The precious metal’s latest rally is a testament to its enduring appeal as a hedge against inflation. With potential policy shifts and geopolitical tensions likely to fuel further inflation, gold stands out as a prudent investment choice.

The current market sentiment is decidedly bullish on the yellow metal. The convergence of factors such as anticipated Fed rate cuts, the political resurgence of Trump, and heightened geopolitical risks are collectively driving demand for gold. Investors are increasingly recognizing the need to secure their wealth against potential market disruptions and inflationary pressures.

A well-balanced investment portfolio is essential for managing risk and achieving long-term financial goals. Gold plays a crucial role in diversification, providing a counterbalance to more volatile asset classes.

Its negative correlation with stocks and bonds makes it an effective risk management tool, particularly in times of economic uncertainty.

The precious metal’s historical performance further cements its position as a reliable investment. Over decades, it has weathered economic crises, geopolitical turmoil, and market fluctuations, emerging stronger each time.

This resilience is a compelling reason for investors to increase their exposure to gold in the current environment.

Nigel Green is deVere CEO and Founder

Originally published at Arabian Post.