Since Donald Trump’s remarkable election victory, gold has fallen from grace, dropping approximately 3% following his announcement. The precious metal has struggled to hold above the $2,800 per ounce level. But is the bull run for gold truly over?
Uncertainty Over Trump's Policies
The market remains uncertain about the long-term impact of Trump’s policies, particularly in areas like tariffs and tax cuts. Tariffs, for instance, could drive up the cost of goods, potentially leading to higher inflation. Conversely, the sweeping tax cuts promised by Trump for both individuals and corporations could have a mixed effect: they may initially boost economic growth and consumer spending, but the resulting increase in demand could also put upward pressure on prices.
The Inflation Puzzle
Trump’s proposed mass deportations of undocumented immigrants add another layer of complexity. While the argument for deportations centers on enforcing legal standards, the economic implications are less clear. Mainstream media often note that undocumented workers contribute to lower food and service prices through inexpensive labor. Removing this labor force could drive up costs, creating inflationary pressures. All these factors suggest potential drivers for inflation, which could, in turn, reinvigorate gold’s bull run.
Bearish Signals for Gold
Despite these inflationary concerns, there are several factors currently weighing against gold. The immediate market reaction to Trump’s victory was a bearish stance on gold and a bullish one on equities. This shift reflects investors' belief that Trump’s economic policies could spur growth, prompting a preference for riskier assets like stocks over safe-haven investments like gold and bonds.
Additionally, central banks, including the People’s Bank of China, have slowed their accumulation of gold reserves. Inflation is also declining globally, and many advanced economies continue to adopt accommodative monetary policies. Emerging markets, too, are seeing some relief from inflationary pressures, moving closer to neutral interest rates.
The Role of Geopolitics and Oil
Trump’s foreign policy, especially his vocal condemnation of wars in Ukraine and the Middle East, could further stabilize global trade and energy markets. His call for increased domestic energy production—coined as “Drill, baby, drill”—is likely to boost oil supply and potentially keep inflation in check by reducing energy costs.
Interest Rates and Fixed Income
Real interest rates currently offer positive yields, thanks to lower inflation. If Trump's policies succeed in stimulating sustainable economic growth, interest rates may remain elevated for an extended period, exerting further downward pressure on gold prices.
Conclusion
At present, the bearish factors for gold seem to outweigh the bullish ones. The Trump administration's policies could lead to a temporary rest for gold’s bull run. However, this does not rule out a potential resurgence. Trade wars, mass deportations, or other inflationary pressures could still ignite a renewed interest in gold, possibly with a vengeance.