Trump Trade in Gold is Valid – Even with Post-Election Dip. Here’s Why.
Strategists say gold's "bullish outlook remains intact” in spite of the post-election dip. Fundamentals are still there & gold is an important stabilizer. Buy the dip.
After Donald Trump was elected the 47th president of the United States, some investors were alarmed by the dip in gold prices. The recent “run” of gold (and silver) at first seemed to be in jeopardy, and investors — including gold IRA owners - were wondering whether there was any chance of a “Trump trade” in gold in the months and years ahead.
By the day after the election, gold had declined to about $2,675 per ounce and its year-to-date return dropped to slightly under 30% at the time this article written. That’s a loss of more than three percentage points from where it was just 24 hours before.[1] As for silver, its year-to-date return had fallen by six percentage points, to 30%-even.[2]
It was a bit of a shock, because everyone had heard that a Trump victory could potentially be good for gold and would help it thrive as a part of the “Trump trade,” which refers to industries, markets, and assets specifically poised to benefit from Trump’s policies and agenda.[3]
Gold did seem to have stabilized a little by the following day. And then two days after the election, it rose to approximately $2,700 per ounce.[4]
The question on everyone’s minds that day was, “What’s going to happen next?
Trump Trade in Gold? Rising Bond Yields, Stronger Dollar Spoil the Outlook
The rosy picture of a post-elected-Trump on the economy was based on the anticipated impact of his proposed tax policies on the national debt and the impact of his planned tariffs.
He also campaigned on the promise of generous tax relief, including shrinking taxes for businesses and ending taxes on tip-based income, overtime compensation, and Social Security benefits.[5]
At the same time, the President-elect has ambitious spending plans, including increases for the military, border and immigrations enforcement, and housing and health care.[6]
He has suggested we will pay for it with new tariffs and cuts in environmental and education spending.[7]
Although many Americans like his plan, some are concerned about the impact of his spending proposals on the deficit and national debt. The drop in gold prices after the election is seen as an expected reaction because of potential increases in the deficit and debt, along with the potential effect on interest rates and prospective rate cuts.
There is also concern for how President Trump’s policies could affect the value of the U.S. dollar.
Bond yields rise when the nation's fiscal outlook darkens, because potential investors in the nation’s debt and Treasury securities expect to be better compensated for the higher risk associated with taking on that extra debt.
And that’s how we saw bond yields and the dollar react earlier this week.
“The promise of fiscal stimulus has pushed bond yields higher as markets price in potential inflation and growth under the Trump administration,” said Matthew Jones of Solomon Global. “This rally in the dollar and yields has put pressure on gold, which traditionally falls as real interest rates rise, reflecting reduced demand for safe-haven assets in the short term.”[8]
Other analysts agree. (See more in the full article – see link at the top of this page.) They also say gold’s short-term situation dropped because some uncertainty was instantly mitigated by Trump’s win.
In fact, some said a reasonable backsliding of gold was long overdue and natural — even healthy — and it wasn’t surprising that the election brought it on.
But, say the experts, the short-term reaction of gold to the election doesn’t change the underlying consistent fundamentals that have supported gold’s growth, and the momentum hasn’t actually ended.
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Gold IRAs and Other Precious Metals Look Good in the Long Term for Stability
Technical market analyst Garry S. Wagner is one analyst who believes gold’s upward climb is far from over.
Looking ahead, he said, there is strong reason to believe that gold will eventually resume its upward trajectory and likely exceed the $2,800 level.[9]
He added, “While prices may continue to decline in the near term, the longer-term bullish outlook remains intact, supported by persistent geopolitical tensions and other underlying market fundamentals.”[10]
In other words: Although it may have appeared at first glance this week that gold was out of the Trump trade, analyst Wagner and others say that’s not at all likely to be the case.
Buying Gold Dip Is “Best Trump Trade Now”
If bond yields rise, the dollar strengthens, and gold declines because people are worried about a worsening fiscal outlook…why would those trends ever reverse as long as the debt pile keeps growing?
The answer is that things continue to look good for gold because the Federal Reserve has an economy to manage. Higher interest rates have strained the economy. And jobs and unemployment are still a consistent problem. [11][12]
And the Fed renewed its rate-cutting regime in September, slashing interest rates by 50 basis points that month. Policymakers cut rates by another quarter-point two days after the election.[13]
All of that explains why experts are saying the “Trump trade” in gold is still viable.
Economist Peter Schiff, famous for being one of the few who forecast the 2008 financial crisis, says the opportunity may be particularly good right now while metals are under pressure.[14]
“The best Trump trade now is buying the dip in gold and gold mining stocks,” he tweeted.[15]
Furthermore, Schiff believes Trump will have a hard time keeping the deficit from growing, because it is already so unmanageably large. He sees a return to quantitative easing by the Fed and inflation going through the roof.[16]
Other experts agree and see the drop in gold as “a temporary blip in what will continue to be a massive bull market for gold.”[17][18] (See examples of expert opinions in the full article – link at top of this page.)
Gold IRA Seen As Helpful Option for Hedging No Matter What Happens
It’s difficult to know what’s coming next, and there are a lot of moving parts. But prudent investors are studying the signs, listening to experts, and making plans for their portfolio's today.
It’s a fact that many investors see gold as a safe-haven asset, strategic hedge, and perhaps a viable “Trump trade” that has the potential to offer the benefits of diversification. Accessing physical gold and silver is now easy through a tax-advantaged retirement account known as a gold IRA (don’t forget to go over the tax implications with a qualified advisor). Because economic, fiscal, and geopolitical uncertainty aren’t expected to go away anytime soon, gold could be a helpful option for many portfolios.
For details on what's happening, read the full article here.
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[1] CNBC.com, “Gold COMEX (Dec′24).”
[2] CNBC.com, “Silver COMEX (Dec′24).”
[3] Bart Melek, TD Securities, “U.S. Election Dynamics Looking Positive for Gold” (May 3, 2024, accessed 11/7/24); Rob Wile, NBC News, “’Trump trade’ takes off: Tesla, Bitcoin and Truth Social boom in election aftermath” (November 6, 2024, accessed 11/7/24).
[4] CNBC.com, “Gold COMEX (Dec′24).”
[5] CRFB.org, “The Fiscal Impact of the Harris and Trump Campaign Plans” (October 28, 2024, accessed 11/7/24).
[6] Ibid.
[7] Ibid.
[8] Neils Christensen, Kitco News, “Trump’s America-First policy drives US dollar and bond yields higher, pushing gold prices down 3%, silver prices down 5%” (November 6, 2024, accessed 11/7/24).
[9] Gary Wagner, Kitco News, “Decisive election outcome and dollar strength move gold sharply lower” (November 6, 2024, accessed 11/7/24).
[10] Ibid.
[11] Jeff Cox, CNBC.com, “U.S. economy added just 12,000 jobs in October, impacted by hurricanes, Boeing strike” (November 1, 2024, accessed 11/7/24).
[12] U.S. News & World Report, “US Job Openings Drop to More Than 3-1/2 Year Low in September” (October 29, 2024, accessed 11/7/24).
[13] Jeff Cox, CNBC.com, “Federal Reserve cuts interest rates by a quarter point” (November 7, 2024, accessed 11/7/24).
[14] David Folkenflik, NPR.org, “The Man Who Predicted The Economic Meltdown” (December 4, 2008, accessed 11/7/24).
[15] Peter Schiff (@PeterSchiff), “The best #Trump trade now is buying the dip in #gold and gold mining stocks,” Twitter (November 6, 2024, 12:27 p.m., accessed 11/7/24).
[16] Peter Schiff (@PeterSchiff), “Big tax cuts are coming for sure,” Twitter (November 6, 2024, 9:14 a.m., accessed 11/7/24).
[17] Anna Golubova, Kitco News, “Can the U.S. survive its debt? The ‘doom loop’ trap, gold’s & dollar’s future under Trump – Stephanie Pomboy” (November 6, 2024, accessed 11/7/24).
[18] James Hyerczyk, FX Empire, “Gold (XAU) Price Forecast: Will Fed Rate Cuts Spark a Strong Rebound Rally? (November 7, 2024, accessed 11/7/24).
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