There is a lot of uncertainty about how the Trump Administration will affect the US and global economies. His aggressive tone regarding foreign relationships can suggest that the most powerful country in the world will change the international panorama in many aspects.
This same uncertainty was felt before and after his victory, when investors all around the world made highly interesting, unpredictable investments and moved their money from one side to another, ignoring gold against all the odds.
Relevant experts in the industry forecasted that a possible victory for Trump would boost gold prices, resulting in something quite different. The upcoming months will be volatile as well.
Chirag Mehta, the senior fund manager at Quantum Mutual Fund, shared his thoughts about how good the gold market could become during the Trump Administration, mainly by analyzing what we all know so far about upcoming policies.
What Is Trump Going To Do?
The key to Trump’s proposed policies is economy growth. He plans to achieve such a thing by renegotiating all those trade pacts and policies that aren’t favoring the US “that much” in comparison with the other part, increasing infrastructure and military spending, and cutting taxes. While these are a good way to go, Trump doesn’t have a favorable panorama.
“Reagan had a falling interest rate environment and much less debt to deal with. Also, he had a favorable demographic shift to work with, as opposed to more retirees today and the onslaught of huge unfunded liabilities on account of social security and entitlements. Today, the market capitalization of US is 196 per cent of GDP, versus 40 per cent when Reagan took office, and that would not be without risk in a rising interest rate scenario,” says Mehta in his article.
The actions the upcoming administration is going to execute have nice intentions but the conditions are quite adequate. This could lead to a massive inflation, making dangerous for both seasoned investors to newbie millionaires to keep their capital in currency. Besides inflation, “All this will increase the US budget deficit and long-term debt and put more upward pressure on bond yields,” adds Mehta.
These conditions are favorable for gold. Countless investors would be pushed towards the yellow metal in order to save their wealth from inflation and high-risk investments.
As Mehta calls it in his article, geopolitical chaos will be a reality during Trump Administration. He talked a lot about tough measures against the Middle East regarding the military conflict and Asia regarding trade. Also, Trump demonstrated during the campaign that he doesn’t have the diplomatic touch that is needed to avoid bad relations overseas.
In order to make his point very clear, Mehta makes a statement about the effects of Trump ruling the White House. “The geopolitical risk premium should increase given the change in government and its more aggressive stance on numerous issues in West Asia. There will be reduced cooperation with the US by the world in response to the US government’s reduced cooperation with the world. Buy gold now is the recommendation as “gold will definitely be placed at a premium because of this,” he said.