Donald Trump Is the Reason the Gold Price Is Set to Increase Before the End of 2018
It’s coming. You may not be seeing its effects yet, but President Donald Trump—or rather, Special Prosecutor Robert Mueller—could make the gold price rise again.
It might be wise to buy some gold now, while it’s trading at a discount.
As the chart below shows, the gold price is hesitating to return to a floor of $1,200 per ounce.
Chart courtesy of StockCharts.com
The gold price started 2018 in the right direction, but an accelerated Federal Reserve interest-rate-lifting program has ruined what could have been a bull year for the yellow metal.
The interference from cryptocurrencies, trying to break their way into becoming the safe-haven investment for the Facebook generation, did the rest to keep gold down.
And then there’s the Turkish crisis. The Turkish economy has the elements to recover, but the gold price may react with a delay—just as it did during the Argentine peso crisis of 1998–2002.
Trump’s Impeachment Rumors
Rumors of impeachment have surrounded President Trump as early as the transition period from President Barack Obama in December 2016.
Until recently, Trump has managed to escape the FBI Special Prosecutor’s claws as he indicted and questioned former close advisors and associates in the context of the “Russiagate” investigation.
But how long will the “Teflon” around Trump last? The president has warned that impeachment proceedings that may result from the indictments of his campaign advisor, Paul Manafort, and lawyer, Michael Cohen, will crash the stock market. (Source: “‘Everybody would be very poor’: Trump predicts stock market would crash if he were impeached,” The Washington Post, August 23, 2018.)
Not everyone agrees with Trump’s assessment. But are Americans willing to test the hypothesis? Trump detractors suggest the stock market would experience a “relief rally.”
Yet, these optimists fail to explain how Vice-President Mike Pence—more conservative and closer to the Tea Party—would do anything differently than Trump.
Be Careful What You Wish For
Surely, Mike Pence would approach the presidency in a more modest fashion. But what the establishment has failed to understand is that Trump enjoys strong support in many economically neglected areas of the United States.
Trump’s impeachment would make many people very angry. Moreover, Trump, for all his belligerence, likes to negotiate.
His removal would cause U.S. foreign policy to take an even more belligerent tone and leave hawks like Mike Pompeo and John Bolton in charge.
The risks of internal and external conflict would no doubt intensify. And stocks don’t like that kind of risk or the prospect of instability in the United States itself.
In This Kind of Uncertainty, The Gold Price Benefits
Just to be clear, Mike Pence would present a whole new set of uncertainties, just when Americans and the rest of the world were starting to become accustomed to Trump.
For starters, the world would discover just what it means to have a leader guided by “biblical values.” Indeed, it’s time to brush up on your Old Testament texts.
In a sense, Pence was Trump’s insurance policy, with the message being: I might be bad, but my immediate substitute is worse.
Moreover, Trump has served as a vehicle—a Trojan Horse, of sorts—for all kinds of unhinged characters who would lead the United States down a far more dangerous path than even Trump.
The gold price will soon increase as the world wakes up to this reality.
Given what appears to be a terminal decline in the appeal of cryptocurrencies such as Bitcoin, gold seems ready to take back its place as the top safe-haven investment.
The mechanism through which the gold price will rise is the U.S. dollar.
To be sure, the dollar is a problem for the U.S. economy and the stock market whether or not Trump is impeached.
Since the start of 2018, the U.S. dollar index has risen by over five percent. Even a one-percent rise would have been incompatible with Trump’s plans for the U.S. economy.
In Short, the Dollar Is Way Too High
The fast-appreciating dollar could not be a worse ingredient for economic growth in the context of Trump’s plans to recalibrate the trade deficit with the rest of the world.
If the U.S. wants to export more than it imports, the dollar should lose rather than gain value. That becomes even more important in the context of higher tariffs and what has started to look like a trade war with China and the European Union.
And that’s where the gold price comes in. One of the main causes of the lower gold price is the high value of the dollar.
Fears of inflation, given the tax cuts and the (real or alleged) growth they have generated, have encouraged the Federal Reserve to increase interest rates.
In turn, that has pushed the value of the dollar up against other major currencies like the euro.
Whereas the Fed has already given up on quantitative easing (QE), the European Central Bank (ECB) has hesitated to start increasing rates. It feels like the Eurozone’s economy has remained fragile.
Still, in 2019, European interest rates will start going up slowly as well. And at that point, the Dollar Index will start to flatten its curve.
Appetite for Safe Havens
The dollar will drop in relation to other major currencies at a relative level.
By the time that happens, Washington could be embroiled in a presidential impeachment process that will have triggered a stock market correction or even a stock market crash.
Should Trump survive the storm, he may feel more confident about taking the Fed’s interest rate policy by the horns. The U.S. president has repeatedly expressed his lack of enthusiasm, if not outright anger, over the Fed’s decision to raise interest rates.
It’s highly unusual—though not illegal—for occupants of the White House to comment on Fed policy, but an empowered Trump—after the storm, of course—could certainly engage the Fed in a battle.
He might even do that before any impeachment proceedings or rumors become more material to drum up support from his base.
Either one of those two things should drive the gold price higher.
The gold price trend simply fails to reflect its potential, given the gloomy forecasts for the U.S. economy and Washington politics in the coming days.
What is certain is that now is the time to watch the gold price carefully.