Gold Lower Before Trump Presidency – Strong Gains Akin To After Obama Inauguration
Gold prices have had a good start to 2017 and has made gains in the majority of currencies, building on the strong gains seen in 2016. So far in 2017, gold is 3.5% higher in dollars, 2.3% higher in euros and 4% higher in sterling.
Increasing nerves regarding the Trump Presidency likely account for some of the gains. Although the fundamentals of the gold market remain strong even were Trump not becoming President of the United State of America.
A backdrop of financial repression and global currency debasement involving ultra loose monetary policies and near negative interest rates, a push for cashless society, a still massively indebted U.S. and global economy and still very fragile banking systems all bodes well for gold prices in the coming years – not too mention positive supply demand fundamental that is peak gold.
Trump is icing on the cake in this regard. While it is always best to fade short term noise about breaking news and the latest market developments, ignoring Trump in the White House as an investor is very much a case of trying to ignore a giant white elephant in a very small room.
We should indeed ignore the short term noise of the Trump inauguration next week – although it is set to be compelling box office viewing! However, it would be imprudent to ignore the likely impact of four years of the Trump Presidency on markets and particularly the gold market. On Wednesday past, we had just a little taste of this when his press conference led to turmoil and massive volatility in markets and gold rising on safe haven demand to over $1,200 per ounce.
Trump’s extraordinary press conference this week highlighted the risks facing markets. Geo-political risk in terms of his ongoing war with U.S. intelligence agencies, increasing tensions with Russia, China, the EU, Mexico and other nations and the real risk of trade, currency and actual wars.
Warnings about the likely impact of the Trump Presidency on markets should be considered carefully – especially in the light of the “irrational exuberance” that continues to be seen on U.S. markets with ‘Dow 20,000’ a breadth away and valuations suggesting another massive bubble with all the risks that entails to pensions and investments.
Indeed, there is a strong argument for becoming more cautious and conservative and reducing allocations to risk assets such as stocks and bonds and increasing allocations to gold.
We believe that gold is likely to perform as well in the first four years of the Trump Presidency as it did in the first four years of the Obama Presidency. Past performance is no guarantee of future returns and all the usual caveats that apply in this regard. However, we believe that the over used “perfect storm” is brewing for gold and it will likely outperform risk assets in the coming years.
So how did gold prices perform during the first four years of Obama’s Presidency?
It is hard to believe but President Obama took his oath of office and made his inauguration address 8 years ago next week – on January 20th, 2009.