The Pietra Sussan Company
30/01/2017
By Joshua Saul
At time of writing, Donald Trump’s presidency is off to a more worrying start than any US president in recent memory. Between rumoured chaos within the government itself, mass protests, ideologically motivated refugee bans, a record low approval rating and mass firings of government employees (as well as at least one fired due to suspect connections to the Russian government), the country is going in a politically very unstable direction.
Attempting to analyse the new president’s influence on gold prices is difficult thanks to his lack of clarity and unpredictable temperament. Uncertainty is clearly running high – the US gold price rose steadily during the days leading up to the inauguration after a massive drop-off following the elections, although it has now recovered more than half of that. Trump’s reported plans for the first 100 days of his time in office have been vague, but a few details can be broadly inferred: Trump’s America will be protectionist, lightly economically regulated and potentially volatile. From this we can suggest a few factors that might cause the gold price to fall, and a number that will cause it to rise.
A Slight Fall…
The Trump administration is likely to be business-friendly, reducing regulations (the president has already committed to removing two regulations for every new one added – whether or not this is feasible, it speaks to a general deregulatory tone in the administration). This is good news for US businesses and perhaps for the US economy in the short term, which should drive the price of gold in US dollars down if it leads to economic recovery. In addition, reductions in environmental regulations may make it easy enough to open or re-open gold mines in various parts of the US, increasing supply and therefore driving down the price.
…And a Meteoric Rise
On the other hand, (insofar as anything can be predicted about the new US administration) Trump has built his campaign on economic protectionism, and looks set to enter a new trade war with China. A specific part of his plans for his first 100 days involved “labelling China a currency manipulator”. With the Chinese government already buying gold in a macroeconomic echo of many private investors, this is likely to increase the gold price significantly. In his first week in office he’s already withdrawn the US from the Trans-Pacific Partnership trade agreement, meaning that the US economy will no longer benefit from a free trade zone that would have encompassed more than 40% of the world’s economy. As Australia is a major gold producer this may also lead to a reduced supply of gold, which will in turn lead to a small price rise, and more generally this will lead to other countries in the agreement feeling the squeeze. Trump also referred to re-negotiating or possibly withdrawing from NAFTA, a flawed but generally beneficial agreement, which some suggest will lead to more job losses.
While investors were initially confident in the Trump government, a steady rise in the gold price following the inauguration demonstrates that that confidence is slipping, especially after Trump demonstrated the ability to severely damage the stock prices of companies he disagrees with using Twitter. Sudden shocks aside, Trump has demonstrated plans to reduce both corporate taxes and taxation of private citizens, which may lead to the gold price dropping slightly as private investors in the US feel a reduced need to store their wealth in gold.
International Relations
Closer to home, uncertainty over the Anglo-US trading partnership, crucial if the government intends to go through with its proposed hard Brexit, is likely to drive the gold price up and reduce the value of the Pound. If Trump’s government is as protectionist as it looks set to be this deal will be in jeopardy.
Internationally the outlook is grim – Trump’s presidency has led to increased geopolitical tension and threatens to unsettle global security. His feuds with China and Mexico are only part of the problem – Trump’s choice of allies (most notably Vladimir Putin, although he’s also connected to Marine Le Pen of France’s National Front party) has ruffled feathers in the international community. Existing contraction aside, it’s quite possible that the world’s economies will be in a worse shape after President Trump’s first 100 days – and in turn, those who haven’t diversified their investments to safe havens will be at risk of heavy losses.
Private Investment
For private investors, this means that while there are some stabilising factors, ultimately the gold price is going to rise while the need for stability and protection from macroeconomic factors will become more acute. In these interesting times, physical gold is a good option for investors looking to avoid the potential aftermath of a US-dominated post-Brexit trade deal, the fallout from an international trade war or the potential market crash that may follow the Trump presidency’s unpredictable approach to economics. As such there’s never been a better time to invest, with the gold price steadily rising from its post-election low once again. Contact The Pietra Sussan Company today to arrange a consultation and find out what kind of physical gold investment is right for you.
