Gold: The Possibility Of A Trump-Induced Bull Run

Michael Fitzsimmons profile picture
Michael Fitzsimmons
19.6K Followers

Summary

  • The last Republican president that "cut taxes" ran up a $1.2 trillion deficit.
  • During that administration, gold went up nearly 6x.
  • The potential for a trade war with China and/or Mexico are certainly greater than "0%".
  • The bottom line is that the future looks very uncertain and volatility can be expected.
  • So while the current consensus appears to be that gold is not worth owning, that is exactly why most investors should own a 5% position in gold bullion.

Gold (NYSEARCA:GLD) is generally regarded a precious metal that can serve as a hedge against inflation and an insurance policy for paper currencies and the high level of debt that they often represent. Gold can often serve as a "go-to" asset in times of increased market volatility and uncertainty.

The current general consensus on Wall Street appears to be that President-elect Donald Trump will usher in a new era of prosperity for the U.S. economy by fixing the tax code, removing regulatory constraints, and fixing unfair trade deals. Combine that with the Federal Reserve's intent to raise interest rates further in 2017, and the outlook for gold is generally thought of as "bad." Indeed, since the Nov. 7th election results and the Fed's raising of the discount rate, gold is down from roughly $1,280 to the current price of $1,155 (around 10%).

Source: Kitco

However, what if Trump turns out not to be the "Magic Bullet" that can fix all that ails the U.S. economy? Going further, what happens if Trump's actions actually cause the economy to go backwards? Currently, investors don't seem to even consider these two potential outcomes. This is exactly why it is more important than ever to have some exposure to gold.

I must admit, I was surprised to see the magnitude of the gold selloff following the presidential election. I say this because, in my opinion, Trump represents one of the most uncertain President-elects to take office in my lifetime. He could be a good thing or a bad thing.

There certainly seems to be trouble on the horizon. It's very easy to cut taxes, much harder to cut spending. During the last Republican administration (under George W. Bush), taxes were cut and spending shot up drastically. This was chronicled in a great article titled

This article was written by

Michael Fitzsimmons profile picture
19.6K Followers
Technology stocks, ETFs, portfolio strategy, renewable energy, and O&G companies. Primary goal is growing net-worth. I typically allocate a portion of my own portfolio and devote some of my SA articles to small and medium sized companies offering compelling risk/reward propositions. I am an Electronics Engineer, not a qualified investment advisor. While the information and data presented in my articles are obtained from company documents and/or sources believed to be reliable, they have not been independently verified. Therefore, I cannot guarantee its accuracy. I advise investors conduct their own research and due-diligence and to consult a qualified investment advisor. I explicitly disclaim any liability that may arise from investment decisions you make based on my articles. Thanks for reading and I wish you much investment success!

Disclosure: I am/we are long GOLD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am an engineer, not a CFA. The information and data presented in this article were obtained from company documents and/or sources believed to be reliable, but have not been independently verified. Therefore, the author cannot guarantee their accuracy. Please do your own research and contact a qualified investment advisor. I am not responsible for investment decisions you make. Thanks for reading and good luck!

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