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Is Donald Trump good for gold? How the president impacts the market

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Is Donald Trump good for gold? How the president impacts the market

Fool’s gold or the Midas touch? Opinions on Donald Trump differ, depending on who you ask. But one thing we can agree on is that his power is felt across the world – and the gold market is no exception. Since he was elected President of the United States in November 2016, Trump has sent waves through the US economy and beyond, and the price of gold has risen and fallen in response.

So, what does this mean for those who have a stake in the gold market, whether that be trading it or simply buying gold coins and bars?

From the fluctuating value of the US dollar to the trade wars between America and other countries we’ve looked at the way the markets have responded to the Trump administration and the impact this could have on gold prices for investors over the long term.

How does President Trump impact the price of gold?

There are a variety of factors that play into the price of gold, many of which Trump has an impact on, both directly through the policies he implements or indirectly through things like Tweets and speeches that express his position on world issues.

The main elements that tie into gold prices include:

  • The US dollar

Gold prices are strongly linked to the US dollar. Historical trends show that when USD is strong, gold tends to be weaker, while a weaker dollar typically causes an increase in gold prices. Generally, Trump has had a positive impact on the value of the US dollar, which usually lowers the gold price. However, his turbulent comments and decisions also trigger regular fluctuations in USD, which subsequently affects the price of gold.

  • Interest rates and savings

High interest rates make gold a less attractive investment, as, unlike other investments, it doesn’t offer interest.A higher interest rate means people are more likely to save, as they get greater returns. As such, the higher the interest rate, the more ‘expensive’ it is to invest in gold because people are missing out the money they’d make investing elsewhere.

When the interest rate is increased by the US Federal Reserve, gold prices tend to dip. Trump’s announcements and opinions on USD interest rates also tend to have an impact on gold prices.

  • Inflation

Closely tied to interest rates, inflation has an impact on the price of gold. Higher expectations for inflation can motivate people to invest in gold, while lower expectations for inflation (which is often tied to rising interest rates) may cause a decrease in demand. The sentiment surrounding inflation in Trump’s economy will have a direct impact on gold prices, as will his comments about the likelihood of an increase or decrease.

  • Global markets

Gold prices are affected by Trump’s relations with other world leaders andAmerica’s decisions surrounding world issues such as trade and tariffs. The relationship between Trump’s international relations and the price of gold is largely due to the fact USD is the de facto currency of the world, and therefore impacts global economies.

The outcome of global summits and meetings between the president and other politicians can influence the strength of USD, which in turn will impact the price of gold, depending on how much faith investors have in the US economy.

Trump and gold: The story so far

Gold prices soar in times of uncertainty, which is why many people expected the gold price to fall once Trump was elected. While this did happen initially, Trump’s victory has also triggered plenty of change for the US, which tends to equate to more uncertainty. Throughout his presidency, Trump has proved to be a controversial character, and (as the charts below indicate) we’ve seen movement in gold prices reflect this.

 

Figure 1: The price of gold November 2016-July 2018 (source: CoinInvest)

Figure 1: The price of gold November 2016-July 2018 (source: CoinInvest)

 

Figure 2: US Dollar index November 2016-August 2018 (source: Trading Economics)

Figure 2: US Dollar index November 2016-August 2018 (source: Trading Economics)

  • November 2016: The gold price went down as USD strengthened, which is partly attributed to general faith in the US economy after Trump’s victory speech.
  • March 2017:There was a spike in gold prices after the G20 summit when the dollar fell following trade talks.
  • Mid-may 2017: After declining gradually, the price of gold rose again after damning reports surfaced in the media, indicating members of Trump’s administration had met with Russian officials.
  • July 2017:Positive employment figures out of the US boosted the dollar, causing gold prices to drop.
  • September 2017: The price of gold spiked after speculation that the US Federal Reserve wouldn’t approve an interest rate rise. However, it fell when it was confirmed that rates would in fact rise and Trump’s tax plan was published.
  • December 2017: Gold prices fell as the interest rate increase came into place, but climbed again throughout the month as USD weakened.
  • March 2018: The price of gold rose after Trump announced intentions to place trade tariffs on aluminium and steel coming out of China, causing widespread uncertainty across Europe, Canada, and Mexico about what other tariffs would be implemented.
  • May 2018: Trump cancelled his North Korean summit, triggering a steep rise in gold prices alongside uncertainty about future relations between the countries.
  • Mid-July 2018:Trump criticised the US Federal Reserve for raising interest rates, causing the dollar to weaken and gold prices to climb.
  • End of July 2018: Gold weakened after the dollar grew stronger following Trump and European Commission chief Jean-Claude Juncker’s announcement they intend to work together towards a deal to lower tariffs, causing US/EU trade tensions to ease.

After tracking current events and the fluctuating gold prices, there’s a clear link between Trump’s activities and the movement of the market.

Those wondering about investing in gold beneath the umbrella of the Trump administration should make a close study of the president’s calendar, looking for potential events that could impact the strength of the dollar, and, subsequently, the price of gold. These include meetings between world leaders, conferences and summits, US Federal Reserve announcements, and major speeches from the president.

USD, gold, and Trump going forward: What next?

As we can see from the timeline above, the US dollar is incredibly sensitive to Trump’s activities. Currently, USD is strong – however, current trade wars Trump has started with the EU, Canada, and China are offsetting this, slowing the decline of gold prices. While there seems to be some movement towards making an arrangement with the EU, there is still much uncertainty surrounding America’s trade relationship with Canada and Mexico.

With uncertainty being a key reason for strong gold prices, and Trump being a president that seems to trigger a lot of uncertainty, it could be that this style of government is exactly what gold prices need to thrive – after all,2017 was the best year for gold since 2010, as the weak dollar caused precious metal prices to rise.

While the dollar has recovered throughout 2018, there have been several instances where gold has seen a price hike, most of which are closely linked to Trump’s unexpected comments and activities.

Looking ahead, it could be that mid-term elections in November restore some sort of stability to the markets. However, if there’s one thing that has been consistent with this presidency, it’s that nothing is consistent – which means Donald Trump’s administration could be the perfect recipe foruncertainty, which we all know is exactly what the gold market craves.

Contributed by Daniel Marburger, Managing Director and Coininvest

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UK leads the way in sustainable finance with the first set of requirements for investment management

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UK leads the way in sustainable finance with the first set of requirements for investment management 1

BSI, in its role as the UK National Standards Body, has today published the first specification for responsible and sustainable investment management. It addresses the policies and processes needed to create and embed a responsible approach to investment management.

It is the second publication from the Sustainable Finance Standardization Programme delivered in collaboration with the Department for Business, Energy and Industrial Strategy (BEIS) and the UK financial services industry in support of the UK Green Finance Strategy. Its launch coincides with the UK preparing to assume the G7 presidency and host next year’s UN Climate Change Conference (COP26), placing a spotlight on the need for business to unlock sustainable finance in order to build resilience, particularly for those operating in the world’s most climate vulnerable countries.

The new standard, PAS 7341:2020, Responsible and sustainable investment management – Specification, sets out the requirements to establish, implement and manage the process of integrating responsible and sustainable considerations into investment management.

It is structured across five key principles of sustainable investment:

  1. Governance and culture
  2. Strategy alignment
  3. Investment processes
  4. Investor rights and responsibilities
  5. Transparency

It underlines the importance of effective disclosure to appropriate stakeholders, and builds on existing industry guidance, principles and regulatory developments.

Scott Steedman, Director of Standards at BSI, said: “The financial system is playing a crucial role in helping to rebuild a more sustainable future through responsible economic growth. This is the first consensus for delivering responsible investment management at corporate level. The new standard, called PAS 7341, creates a way for financial management organizations to transition from ‘responsible’ to ‘sustainable’ investment management. In our role as the UK National Standards Body we are proud to support the government’s Green Finance Strategy with this globally relevant, pioneering and practical standard.”

Kwasi Kwarteng, Minister of State for Business, Energy and Clean Growth, said: “Transforming our financial system for a greener future is crucial as we build back better from Covid-19 and to meet our legally binding target for net zero carbon emissions by 2050. Building on our pioneering Green Finance Strategy, this new standard will help the UK investment sector become even more sustainable as we strive to lead the world in tackling climate change.”

This free to download standard has been produced by a steering group1 of technical experts made-up of organizations from the UK finance eco-system.

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Why investing should be treated like healthcare

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Why investing should be treated like healthcare 2

By Qiaojia Li, co-founder and CEO at the award winning wealthtech company, Rosecut

For many people, the process of investing can seem opaque and impenetrable, and filled with jargon.

They can see the potential benefits, but they can also see the Financial Conduct Authority (FCA) risk warnings.

Despite – or perhaps because of – this, the long-term trend suggests that more individuals are open to investing. One set of statistics suggests the percentage of individuals investing in stocks and shares in the UK grew nearly three per cent between 2010 and 2018.

Here are four steps for sensible investing:

1. Figure out why you invest, ahead of everything else

The key here is knowing what the overall goal is.

It is a constant source of amazement that when it comes to investing, few people stop to consider why they are actually doing it. Whether they have £100 or £100,000, many do not think about how their approach should be dictated by their overall goals.

For instance, someone looking to buy a house in the next 12 to 24 months should not be looking to dive into the world of bonds and equities, because they have a short-term target which requires reasonably fast access to cash. Tying their resources up in different funds and stocks will not only limit how quickly they can get their hands on their money when it comes to putting down a deposit, but they will not see the return that they would expect due to the short term price fluctuation of these assets. They would be better using a Cash ISA and enjoying the tax-free allowance.

On the other hand, if they have spare cash lying around that they won’t need for the next 3-5 years or longer, or they want to get a headstart on earning their retirement or long-term financial freedom, investing into financial markets is the way to generate compound return. That will give them a chance to beat inflation and, in all likelihood, it will give them a higher return than real estate would.

It is like any big project – determining the overall goal informs the strategy, which dictates the tactics. In the world of investment, this means management. Yet even deciding what goals they are working towards can be challenging for some people – they might have overinflated ideas or be too conservative.

This is where independent, objective, and knowledgeable financial planning comes in. By giving an individual’s finances a thorough check-up – much like visiting a GP – a qualified and experienced financial planner can consider circumstances, wishes and constraints. Only when this has been completed can they assess how feasible a client’s goals are, and the client can start considering how they should invest.

It needs to be a bespoke diagnostic and prescription process, in much the same way that a trip to the doctor requires the practitioner to have an understanding of any contributing factors and your medical history.

2. Seek professional help

If you were going to buy a property, you would look for a capable and qualified property lawyer instead of reading legal textbooks and undertaking training. The same logic applies to other professional advice, such as accounting, medical treatment and tax. Strangely, though, when it comes to investing, many people attempt to teach themselves.

While this approach is to be applauded, and there is certainly a huge amount of information readily available within a couple of clicks, the intricacies and vagaries of asset classes and funds, opposing investment styles, individual savings accounts and a hundred and one other terms can be overwhelming.

Forging ahead without professional guidance is a bit like having a pain in your hand and deciding to do a bit of exploratory surgery based on watching medical documentaries – there is only a slim possibility everything will turn out fine. This is why 99% of people have lost money by DIY-ing their own investments. It is a risky learning curve that, frankly, is better outsourced.  Learning how to find a good investment provider can be a more efficient and less risky use of your time.

3. Do not trade

Qiaojia Li

Qiaojia Li

In the report quoted above, there is an alarming line: “Investors are now holding onto their shares for 0.8 years on average before selling them. In 1980, the average was 9.7 years, representing a decline of 91.75%.”

The proliferation of trading apps brings convenience and lowers barriers, helping people to access financial products, but the user friendliness of the technology often encourages over engagement at a real financial cost.

On an individual basis, each time you buy and sell any financial product (not just shares, but funds too)  you lose a tiny slice of your capital, even if you can trade for free – this is due to “spread” which, put simply,  is the price difference between purchase price and sale price. As you trade, this quickly adds up and eats into your principal, which you need to earn back before seeing any profit. This is a direct cost, in addition to the time you invest, checking the share price several times a day, the sleep you lose during volatile days, and the potential for developing an addiction, which is a common result of trading. Take a look at your work pension investment report if you have any – there is a reason why professional investors don’t buy and sell frequently.

On a collective basis, crowd trading behaviour drives more “boom and bust” cycles of financial markets, which has happened many times before and will continue to happen in the future. It is a more pronounced characteristic of less developed financial markets where there are fewer professional/institutional investors to stabilise  the market for everyone’s benefit.

4. Diversify globally, meaningfully

Sensible investing requires a skillset that is the opposite of most professional careers or entrepreneurship. In the latter, one strives to become an expert in a chosen arena in order to command the highest possible pay or profit margin. A wise investor, meanwhile, needs to be a generalist rather than a specialist, and investing is about hedging all possible risks before seeking a return. One of the biggest principles to reduce risk is to diversify on various levels:

  • Your holding currency – for example, GBP has lost more than 15% in value against USD compared to the pre-Brexit high of five years ago, so it is a bad idea to hold all your assets in GBP only
  • Your country/geography exposure – for example, you can buy GBP priced US assets, or USD priced US assets, such as S&P 500 tracker, to have a slice of US economy growth. We strongly encourage people to consider a globally diversified portfolio, for the reason that different economies go through business cycles and are at different stages at any given point of time. With a globally diversified portfolio, you can always benefit from the growth of some country, somewhere, at any given point of time
  • Asset classes – If all your money is in London real estate, for example, you are likely to have felt some value depreciation since 2014. You take a risk if you tie your financial future to a single city’s economic cycle and potential rise and fall.
  • Industry allocation – as a former banker I never bought banking stocks or bonds, simply because my job and salary were already tied to the UK banking sector, and owning a piece of banks is like doubling down in a casino – not wise for risk mitigation. This is an often overlooked risk – people like to invest into companies and sectors they know well, typically from professional exposure and “inside knowledge” but this leads to blind spots and concentration risk.

Investing should be part of one’s long term financial strategy hence there is no one size fits all recommendation that I could give here. A simple step by step guide is:

1. Save a good portion of your monthly income, that allows you to enjoy your current life but also prepare for the future

2. Shortlist 3 financial planners (include Rosecut as one option) and pick one that you feel you can trust and who is cost effective to lay out your big picture and future plan

3. Invest regularly into a globally diversified, professionally managed portfolio that fits with your future goal and then make minimal changes. Ideally you should only even consider changing on an annual basis

4. Learn from this loop, iterate and optimise, ask many questions along the way!

Rosecut is a financial planning partner and investment manager, giving access to the knowledge you need to plan for the future you want. Start your free financial health check today at https://app.rosecut.com/ or download the app.

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Are clients truly getting value from their BR solution?

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Are clients truly getting value from their BR solution? 3

By Matt Dickens, Senior Business Development Director at Ingenious

Financial planners and wealth managers strive to deliver on the needs of their clients by always providing the most suitable and effective advice. But as with any service, this advice should also be delivered at the best possible value for the investor. Value can be simplistically defined as the service that delivers the most benefit, balanced against the financial cost, but in the estate planning space, how do you assess what good value is?

1. Total fees and charges

Product fees are guaranteed to negatively impact returns, so it is important to minimise their impact when looking to gain the best value from the investment. Some managers report little or no fees paid by the investor to the manager, but instead charge the company or investment service itself. While this might initially be seen as better value for the investor, it is not as simple as that. Investors in unlisted BR services become a shareholder of the portfolio companies, so the reality is that any fees paid by the companies are effectively being paid by the shareholder (or investor). Therefore, both investor fees and company fees will both negatively impact the final return and must be considered together.

Analysis of what a manager is paid by the investor and by the company over a significant period will enable an adviser to conclude if the manager is offering good value, or if a disproportionate amount of fees is going to the manager at the expense of their investors.

2. Real investment returns

Another key component of assessing value is what the investment actually delivers. For BR solutions, investors’ main objective is commonly to pass on the maximum sum possible to their beneficiaries upon death. This may lead to a conclusion that delivering Inheritance Tax relief at the lowest possible cost is the primary driver of value. However, especially for clients with longer time horizons, the one-dimensional goal of avoiding a potential 40% Inheritance Tax bill can easily over-shadow the equally important goal of aiming to steadily grow the investment, preventing erosion by inflation, drawdowns and investment fees. Unlike some IHT-focused solutions, such as trusts or gifting, investors in BR services do not have to accept zero growth of their wealth from the point of investment.  Instead, investors can continue to earn returns, either taking an income stream or increasing the final sum to be passed onto their beneficiaries, precisely in line with their original objective.

While most BR managers predict their ongoing returns at a certain level, those targets are not guaranteed and historic performance varies widely.

3. The relationship between fees and risk

Given that the majority of managers in the BR space state their performance targets net of fees, to produce positive growth and achieve their target return, those managers must first earn back any fees they are taking. Let’s take the below scenario to illustrate this point.

 Are clients truly getting value from their BR solution? 4Manager 1

Annual performance target, net of fees: 3%

Annual fees: 3%

Gross performance target: 6%

 

Are clients truly getting value from their BR solution? 5Manager 2

Annual performance target, net of fees: 4%

Annual fees: 1%

Gross performance target: 5%

Initially, it might appear that Manager 2 must be taking more risk to target a higher net return of 4% than Manager 1, who is targeting 3%. However, Manager 1 has to deliver an additional 2% of gross return than Manager 2, to make up for charging higher fees. Higher fees not only impact returns and value, but they can also mean greater risk.

Market comparison

In the Tax Efficient Review’s most recent analysis of Unlisted BR Services1, they released data that ranks services in the market in terms of both investor returns and total fees. IEP Private Real Estate achieved the top rank for returns delivered, with the second lowest total fees in the market, demonstrating that it represents attractive value for investors in comparison to other services.

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