Trump Wins! What Does This Mean for Precious Metals?
Posted onAmericans across the nation were sitting on the edge of their seats waiting for results on election night. We didn’t have to wait long. In the wee hours of the
morning Wednesday, the AP called the election for Donald J. Trump after it became clear he won enough of the key battleground states to tip him over the 270 Electoral College votes needed to clinch the victory. Republicans also gained control of the U.S. Senate.
What does this mean for precious metals, the economy and your investments? Let’s take a look.
Initial Market Reaction
- Gold: The precious metal tumbled over $70 Wednesday in an initial knee-jerk market reaction to the swift victory. Gold had priced in some expectations that the election results would be drawn out and contested and could even trigger social unrest. Gold fell Wednesday as the market de-priced those concerns.
- Stocks: The U.S. stock market surged higher driven by expectations of deregulation and tax cuts that could increase corporate profits.
- Treasuries: The yield on the 10-year Treasury note climbed on expectations that Trump’s proposed tax cuts will add more to the deficit.
- Dollar: The U.S. dollar jumped higher on the Trump victory news amid ideas that inflation will move higher under his proposed tariff policies. The market dialed back expectations of future interest rate cuts—if the Fed needs to continue its fight against a renewed inflationary surge—which boosted the dollar.
These reactions however—are just that—initial reactions. In fact, gold already reclaimed half of Wednesday’s loss by Thursday morning. There are many longer-term ramifications from potential Trump policies that could positively impact precious metals—especially gold.
Why Trump’s Policies Will Be Good For Gold
There are three major buckets of Trump policies that long-term will be positive for gold.
- Trump’s proposed tariffs—which could lead to slower economic growth and higher inflation. Positive for gold.
- Trump’s proposed tax cuts—which could lead to a higher deficit. Positive for gold.
- Expectations for a changing world order—which could lead to increased safe-haven demand for precious metals amid geopolitical conflict. Positive for gold.
Why Tariffs Are Inflationary and Positive for Gold
President-elect Trump campaigned extensively on using tariffs in his second term. He used tariffs as president targeting a variety of imported goods from China. This time, Trump has proposed a 60% tariff on all goods imported from China and up to 20% on everything else America imports.
How tariffs work:
- In the U.S., there are 328 ports of entry across the country. At these ports, the Customs and Border Protection agents collects the tariffs.
- The American companies—those that are importing and bringing those goods into the country—are responsible for paying the tariff to the Custom and Border Protection agents.
- Those funds are then sent to the U.S. Treasury.
The American companies doing the importing typically pass these higher costs along to their customers in the form of higher prices—or more inflation.
The economic impact from tariffs—lower economic growth and higher inflation.
- Trump’s main tariff proposals, which are expected to encourage retaliation from the targeted countries are expected to trim economic growth by over a full percentage point by 2025 and increase inflation by more than 2 percentage points higher, according to the non-partisan Peterson Institute for International Economics.
Gold impact: If Trump enacts these tariffs, gold will continue to gain in price as the Fed will be fighting rising inflation and falling economic growth.
Why Tax Cuts Are Positive for Gold
On the campaign trail, President-elect Trump proposed a variety of tax cuts from eliminating taxes on tips to removing the taxes that some seniors pay on Social Security checks to lowering the corporate tax rate. Also, the Tax Cuts and Jobs Act of 2017 expires at the end of 2025 and Trump is expected to keep many of these tax cuts in place.
Gold impact: Eliminating these taxes would mean a loss of revenue for the federal government and an increase in the federal deficit. Concerns over the ongoing rise in the record-breaking federal deficit has been a key reason many investors have been piling into gold in 2024. Experts are warning that if the U.S. continues to increase its debt, the only solution is for currency devaluation. A paper currency devaluation would be extremely positive for a physical tangible asset like gold.
Why A Changing World Order is Positive for Gold
President-elect Trump will return to the White House with two escalating regional wars underway. A new authoritarian axis is arising which includes Russia and North Korea partnering in the war against Ukraine. China is providing support to Russia, North Korea and Iran—while it prepares its military for a potential invasion of Taiwan, which China has publicly told it’s military to be ready for by 2027. Israel’s war against Hamas has expanded with an invasion of Lebanon and direct missile strikes against Iran.
The chess pieces are moving around on the global stage and the role of America is expected to change—with perhaps a withdrawal of support for Ukraine.
As countries make new partnerships amid growing military conflict, the traditional role of American support for European security may be shifting in a second Trump administration.
The chess game has many moves left and there will be unexpected twists and turns in the months and years ahead. But, the changing world order has several deadly military conflicts still smoldering with the potential for new military conflict over Taiwan and economic trade wars in the months ahead.
Gold impact: Precious metals will continue to attract central bank, institutional and individual buyers as gold is a safe-haven currency that is beholden to no country or government. As a time-honored safe-have investment, gold will gain amid an increasingly unstable geopolitical world.
Want to read more? Subscribe to the Blanchard Newsletter and get our tales from the vault, our favorite stories from around the world and the latest tangible assets news delivered to your inbox weekly.
