President Trump sounds good for gold: more low rates, a weak dollar, and debt-fueled spending
The Republican Partys presumptive nominee, Donald Trump, is a tough candidate to pin down in terms of where he stands on the ideological spectrum of politics. But what he had to say Thursday seems to bode well for future gold prices if nothing else.
Although Trump evokes visceral reactions among many observers, he has a long track record of donating to both political parties and has plenty of friends among the Democrats. In fact, some analysts were saying months ago that Trumps policies might only add tons of more red ink to the already-bloated $19 trillion national debt.
Comfortable with debt: Respected bond guru Jeffrey Gundlach of DoubleLine Capital agreed with those suspicions in remarks at the Sohn Investment Conference in New York this week, predicting that Trump will win the presidency and, once there, will drive up the U.S. debt-to-GDP ratio.
Whats going to happen is youre going to get a Reagan response with Donald Trump, Gundlach said. He promises a wall, he promises to bring jobs back, and he promises a lot of infrastructure spending. Lets face it: Trump is extremely comfortable with debt.
And debt is important to gold prices. Until the 2011 correction in bullion prices that stretched up until 2016, gold rose almost in lockstep with the national debt. Sooner or later, theres a good chance that that tight-knit correlation will re-establish itself.
Im a low-interest-rate person: But lets not just listen to Gundlachs speculation about Trump; lets hear what the candidate himself recently said about topics ranging from the Federal Reserve to debt to the U.S. dollar.
Regarding the Fed, although he has called for auditing the Fed, dont expect Trump to kick the money-changers out of the Marriner Eccles temple upon his theoretical election. Although he would dump current Chairwoman Janet Yellen, he says he nevertheless favors low interest rates.
I have nothing against Janet Yellen whatsoever, he told CNBC. I think shes been doing her job. I dont know her. Shes a very capable person. People I know have a high regard for her. But shes not a Republican.
When her time is up I would most likely replace because of the fact it would be appropriate, he said. She is a low-interest-rate person, shes always been a low-interest-rate person, and lets be honest, Im a low-interest-rate person, Trump added.
Apparently, its not Yellens policies that Trump opposes, but the political party with which she apparently aligns herself. Were paying a very low interest rate. What happens if that interest rate goes up 2, 3, 4 points? he asked. We dont have a country.
Strong dollar causes havoc: It also turns out that a strong dollar is not something that Trump advocates. If we raise interest rates and if the dollar starts getting too strong, well have some very major problems, he said. I love the concept of a strong dollar, but when you look at the havoc that a strong dollar causes ... it sounds better to have a strong dollar than it actually is.
With building a wall along the U.S. border with Mexico being a primary plank of his campaign, Trump also came out for what sounds like a Works Progress Administration-style program. We do need money to rebuild the infrastructure of the country, he said. The beautiful thing about infrastructure is it puts people to work, immediately puts people to work, he continued, But its got to be done properly, on time and on budget.
Calling himself the king of debt, Trumps solution to the U.S. predicament is refinancing the debt.
Although the statements above sound downright Keynesian, Trump did promise some conservative items on his agenda, including lowering taxes, preventing a liberal majority on the Supreme Court, repealing the Affordable Care Act (Obamacare), and eliminating or modifying the Dodd-Frank Act.
However, in light of his concerns about raising interest rates and strengthening the dollar, combined with his embrace of debt and massive infrastructure projects, Trumps presidency could well turn out to be great for gold. And the sheer uncertainty leading up to his possible election should drive bullion higher regardless of who wins. And, needless to say, if his opponent prevails, then the sky could truly be the limit for the yellow metal.