Donald Trump stunned the nation with his unexpected victory to become the 45th president of the United States. The news sent shock waves through international markets, which had largely priced in a Clinton victory and stocks initially collapsed to sharply lower levels.
In a massive reversal of sentiment on Wednesday, U.S. stocks closed sharply higher in a relief rally.
Markets hate surprises and the election of President Trump was a big one. Investors took solace in the fact that it was a decisive result and that there would be a smooth transition of power ahead. The stock market strengthened even more following Hillary Clinton’s concession speech on Wednesday, knowing there would not be a contested election.
In the days ahead, investors, Wall Street, and business owners will be attempting to decipher what a Trump presidency will really mean for the economy and the markets. There is a significant amount of uncertainty regarding what lies ahead for the economy under a Trump Presidency. Businesses and households may well delay or reduce spending, which could be an immediate drag on economic growth.
Gold will continue thrive in the current economic and political environment. Under President Trump, gold could rally up to $1,500 an ounce from its current $1,300 level.
This week’s vote means the Republicans will control the White House as well as the Senate and the House, which creates the opportunity to break the gridlock and implement policy changes. Mr. Trumps economic policy proposals include three major areas: large tax cuts, protectionist trade measures and immigration restrictions. Here is a snapshot on how a few of his proposals could affect gold.
Spending: Mr. Trump may attempt to push through his proposals which include increased spending on infrastructure, the military and veterans. These measures could stimulate the economy. What would this mean for gold? These policies would be inflationary and add to the deficit, both which support the current rising trend in gold and precious metals prices.
Taxes: Mr. Trump has proposed a tax cut package that will cut income taxes at the top-end tax rates for individuals, and also slashing the corporate tax rate significantly. Unfunded tax cuts would add to the deficit and strengthen gold.
Trade: Mr. Trump has threatened to pull out of or renegotiate NAFTA and several other trade alliances and deals. He has warned that he will label China a currency manipulator. Trump’s stated policies of protectionism would be negative for economic growth and divisive for the global economy. Increased global tensions and slower economic growth could result, which would support gold.
The U.S. dollar: Mr. Trump’s policies are expected to negatively impact the U.S. dollar, which trades inversely to gold. If the dollar declines, gold tends to rise. His comments on renegotiating U.S. debt held by foreigners may limit the attractiveness of bonds to foreign investors, and pressure the dollar lower.
There are many forces at play and a number of scenarios that could unfold. We expect that market volatility will likely increase as uncertainty on how these could play out weigh on sentiment in the weeks ahead. The stock market remains vulnerable on the downside.
As Mr. Trump prepares for his State of the Union address this January, the nation is bracing for change. The unexpected outcome of this election ushers in the potential for significant changes and a period of high economic uncertainty. Gold and precious metals will continue to thrive in this environment. Gold offer investors a safe-haven investment and a high-quality liquid investment that has acted as a store of value and a wealth building tool throughout history.
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