Donald Trump: His controversial candidacy good for gold, experts sayPosted on — Leave a comment
Donald Trumps dominance of the Super Tuesday primaries has all but ensured him the Republican presidential nomination mathematically, anyway. Whether the GOP establishment will contest his ascendancy is another matter altogether.
But what does his potential nomination and/or presidency mean for the financial markets, in particular, gold.
The clearest answer yet is: We dont know. Love him or hate him, Trump has supported the positions of both the Republican and the Democratic parties over the decades. And what that boils down to for 2016 and beyond is uncertainty, which almost always is good for gold.
Moreover, if the GOP self-destructs because of its leaderships rejection of Trumps candidacy, or if Trump soldiers on as a third-party trailblazer, that implosion and resulting turmoil also could help bullion prices.
Uncertainty not yet priced in: Commenting on the outsider candidacies of Trump and his Democratic counterpart, Bernie Sanders, top Allianz adviser and former Pimco boss Mohamed El-Erian noted that the emergence of these nontraditional parties, the anti-establishment parties, adds to uncertainty. Markets in the U.S. havent priced that yet; it is a new phenomenon. It hasnt been priced in yet, but I think that there is an uncertainty premium that is going to come from the political side.
Trumps critics despise his bombastic, antagonistic approach, and the idea that his finger will be on the nuclear button as the U.S. confronts threats ranging from Russia to ISIS is making many people frightened, justified or not.
The Wall Street Journals MoneyBeat blog also weighed in on the issue in a post titled Trumps ascendance could be good for gold. The post cited the possibility that that nervous investors could pile in to gold and other safe-haven assets as an insurance policy.
J.P. Morgan Asset Managements James Sutton explained, If theres any uncertainty regarding the U.S. election and the potential for a slightly off-center candidate, whether that be Sanders or Trump winning the election, then I can see a scenario where thats bad for the dollar.
Critics say Trump will run up the debt: Financial journalist Brett Arends, who works for The Wall Street Journal as well, also said Trumps rise could boost the yellow metal, thanks to the billionaires vow to engage in trade wars with China and other nations, as well as a spending plan that reportedly will add trillions to the budget deficit.
Arends cites a study by the nonpartisan Tax Policy Center, which projected that his proposed tax breaks, unless accompanied by very large spending cuts could increase the national debt by nearly 80% of gross domestic product by 2036.
A similar analysis by The Tax Foundation concluded that Trumps tax plan would greatly increase the U.S. economys size in the long run while also boosting the governments deficit by $10 trillion over a decade.
As a result, of this anticipated red ink Arends concludes: Trumps stated policies point toward massive deficits, more U.S. unilateralism, policy uncertainty, and global trade and currency wars. His (Super Tuesday) victory last night ought logically to be bearish for stocks and bonds, and bullish for bullion. We shall see.
Tax reforms could boost U.S. businesses: Other experts, such as Commerzbank, say Trumps candidacy will be a nonissue for gold, giving more importance to movements in bullion-linked ETFs and the federal funds rate.
Still others predict that business could potentially boom under Trump. Stocks will go straight up, OLeary Financial Group Chairman Kevin OLeary told CNBC.
OLeary thinks that Trump will ride a wave of populist anger against the government into the White House and that his proposed reforms of the tax code will give U.S. businesses the edge they have been lacking for quite some time.
However, OLeary argues that once in office, Trump will find that cooler heads will prevail and rein in some of his more controversial plans, such as building a wall along Mexicos border.
Stocks tend to fall in election years: Once again, we dont know whats Trumps possible election will do to markets, but history shows that presidential turnovers can affect financial markets. In the election year itself, the market tends to fall, especially in the final year of a presidents second term, noted Trevir Nath.
Hiccups in equities also can occur later. Economist Yale Hirschs presidential election cycle theory has found that U.S. stock markets are weakest in the year following the election of a new U.S. president.
The jury is still out on the nuts and bolts of Trumps policies, but his unpredictable, anti-establishment candidacy is making many people nervous. Thats good for gold. Likewise, the potential election of Democrats big-government candidate, Hillary Clinton, also could benefit precious metals. The true conservative investing approach amid this election-year uncertainty is to prepare for any contingency and remain prudently invested in both bullion and rare coins.