How Will President Trump Affect Gold Prices?

by IRA Rollover in Politics & Gold with Comments Off on How Will President Trump Affect Gold Prices?

Nothing influences the price of gold quite like politics, particularly in an election year. No matter who wins or what they have promised, the weeks following the election are usually turbulent and uncertain for gold prices.

Changing Policies Mean Price Fluctuations

In the two weeks following Donald Trump’s election gold fell 0.1%. The stock market has been volatile as well, in large part because no one knows what to expect from the new president. The only thing anyone is certain of 6 weeks into the new presidency is that there will be some big changes in policy and uncertainly about the economic future. The two executive orders on a travel ban, uncertainty about whether there will be a southern border wall and how much it will cost, and the reorganization of major government offices tend to make the markets insecure. The price of gold reflects those uncertainties, moving up and down with every new change. It seems that the only consistent thing these days is inconsistency.

This could be good news for gold prices. As big changes are made the economy suffers from a general lack of confidence, the dollar weakens, and the price of gold rises. Some experts are predicting that gold will gain another 15% by the end of 2017 to hit at least $1400.

What do Trump’s Cabinet Appointments Mean for the Price of Gold?

President Trump has some big plans for the nation and none will come without consequences, both good and bad. The Department of Justice, for example, is going to change the entire attitude of law enforcement with the installation of Jeff Sessions as Attorney General. More emphasis will be placed on the letter of the law and less on recent social justice causes. Likewise, Trump’s appointments to the Supreme Court over his term of office will undoubtedly impact many areas affecting business and commerce and thus affect the price of gold.

One of the Trump appointments that will make a huge impact on gold is Rex Tillerson as Secretary of State. His duties include meeting world leaders, negotiating treaties and agreements, and working to insure that economic conditions are favorable to the U.S. A former CEO of Exxon, he is uniquely qualified to deal with oil rich countries and has many contacts to tap into when it comes to negotiating trade deals. He can change or cancel existing trade agreements if they don’t appear to be beneficial to the country. This could mean our economy will improve and become more financially stable, thus driving down the price of gold. Or he could be the wrong choice for the job and drive up the price of gold by making the economy more unstable.

What about His Financial Policies?

Trump’s choice of Steven Mnuchin for treasury secretary (also rumored to be the choice of Mrs. Clinton if she had won) created a lot of uncertainty for many. Mnuchin has a solid financial background; he’s connected with both Goldman Sachs and the Soros Fund Management. It appears that he may endorse the continuation of charitable tax deductions for the wealthy, a deduction that allows them to avoid paying millions in taxes each year. Mnuchin may also endorse more tax loopholes for corporations assuming tax reform doesn’t lower corporate tax rates. He also is a proponent of abolishing the home mortgage tax deduction that mainly benefits what’s left of the middle class. These policies would not be doing the economy any favors and may even have a devastating effect on consumer confidence and spending. In this case the price of gold would most certainly get a substantial boost.

As for interest rates, the Feds are not changing them yet because of the pressure of rising prices. Trump has said several times that the zero interest policy of the fed since 2008 has been bad for both savers and the country’s economic growth. Concern about interest rates along with fears of global depression and a tariff war caused gold’s price to spike on election night then lose $100 an ounce in the days following the election. Speculation about rising inflation also helped the price of gold to rise.

During his campaign, President Trump mentioned a few times that he’d like to return to the gold standard but that is very unlikely. If it did happen there would be little demand for gold and the price would fall dramatically.

Will Donald Trump Spend the Country Into Ruin?

If Trump makes good on his promises to spend $1 trillion on the country’s infrastructure, improve the military, and dramatically cut taxes for businesses the economy might suffer but gold prices would rise. The national budget is now in the red $500 billion each year and Trump’s plans could worsen the situation even if we experience higher growth due to those policies. The spending excesses of the past 8 years would make any recession push our budget deficit to more than 10% of the GDP.

If Trump succeeds in tightening the purse strings and interest rates go higher the fed may be able to avoid monetizing the national debt. Gold prices would naturally shrink as the economy and consumer confidence improved. However, if Trump is not willing to subject the nation to real economic distress that would follow higher interest rates the fed would have to monetize the debt and set us on a course toward hyperinflation. That would be a boon to gold prices.

The speculation that a lot of regulations will be tossed off the books is making businesses optimistic and may compensate for some of Trump’s spending. Many regulations have already been tossed aside, improving business conditions and making the stock market a bit healthier. The previous administration instituted over 25,000 new regulations on business and the environment that drastically reduced the number of new businesses, crippled or destroyed many small businesses and adversely impacted the bottom line of many large corporations. Indeed, many major businesses moved to other countries. This trend is reversing since a new president was elected and at least two major corporations have cancelled their plans to move or open factories in other countries.

Rumors and Drama in the White House

There has been much speculation among those unhappy with the new president as to whether Donald Trump will be impeached and not serve out his term of office. This would certainly wreak havoc on the economy and gold prices would soar. Impeachment, though, is a rare occurrence when it comes to our presidents. Impeachment proceedings have mostly been brought against judges in the federal courts, not the highest office in the land. And a presidential impeachment does not mean he or she loses their office.

A public official can be impeached only if they are convicted of treason, bribery, or other high crimes and misdemeanors. The last requirement is subject to political manipulation and usually means that the official neglected his duties. For instance, President Bill Clinton was impeached in 1999 for perjury and obstruction of justice. He was not removed from office because no more than 50 senators were willing to vote for his ouster. A House majority is required to bring impeachment charges; the Senate then tries the official and 2/3 of their votes are needed to convict. The only other president to be impeached was Andrew Johnson and he kept his office because of the lack of one vote 

It is unlikely that the price of gold will be affected by something as dramatic as the impeachment of the president. That will come as a relief to many who prefer consistency to drama.

Where Does This Leave the Price of Gold?

There have already been a lot of changes and many more are on the way. The price of gold surged to $1,337.40 once the election results were in but fell below $1,300.00 as the financial world’s confidence slowly grew. By February 23, 2017 the economy calmed down further and gold had fallen to $1,249.55.

Predicting the price of gold isn’t always easy given all that’s happening in the Trump administration and the effect it may have on the economy. A healthy economy means lower gold prices and a struggling economy drives the price of gold higher. The important thing to remember is that gold has the same value no matter how many dollars it takes to buy it; it’s the dollar whose value changes, not the gold. The price of gold will always be a bargain for the security and lasting value that it brings.

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