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.
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.
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.
- 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