Uncertainty About Trump Boosts Gold
Gold made a rebound following President Trump’s first days in office, after a number of Executive Orders which have left the rest of the world reeling. The commodity dropped in the days following Trump’s election, as the DOW shot up to record levels. However, Trump has recently reversed U.S. policy on immigration, withdrawn from a major trade treaty, and questioned the value of NATO, causing investors to wonder whether the world is headed for a period of instability.
Gold Climbs Thanks to American Isolationism
Gold first began its latest climb in the wake of Donald Trump’s inaugural address, which was decidedly isolationist. While calling for more countries to shoulder the burdens of their international concerns was a cornerstone of his campaign, many political analysts had expected a drift to the center once he was installed in office. However, within minutes of stepping up to the microphone, Trump had stressed that from now on, his policy was to be “only America first.”
The End of Pact Trade Negotiations
And Trump made good on that promise almost immediately, by withdrawing from the Trans-Pacific Partnership (TPP), an agreement which gave favorable trade deals to 12 countries ringing the Pacific Rim. The pact had not yet been ratified, so there was minimal fallout from the withdrawal. Still, investors pointed to this change in negotiation strategy as a shift away from America’s typical alliances. The members of the TPP represent most of America’s largest trade partners, and those countries can no longer expect favored status, and must now negotiate terms on a one-on-one basis. Uncertainty regarding prospective trade deficits, particularly in light of Trump’s aggressive call for tariffs on imports from countries with business practices that he considers unfair, led to divestment in Asian markets.
Oil Prices in Limbo
Trump also pumped new blood into the American oil industry, by demanding that work on two pipeline projects begin immediately. These pipelines will bring hundreds of thousands of barrels of oil to market, and are perfectly timed to temper the rise in prices expected after OPEC and several other oil producing countries agreed to restrict crude production late last year. Trump plans to reduce America’s dependence on foreign oil, by encouraging development of domestic sources. Investors were waiting to see if a closer relationship between Russia and the more moderate Middle Eastern states could lead to greater access to competitive oil prices. Instead, Trump seems primed to cut out the middle man. Commodities investors then shifted some of their holdings from oil to gold.
Trump Ticks off Top Trade Partner
Trump’s most controversial Executive Orders related to immigration. First, President Trump reiterated that he intended to complete the barrier along America’s border with Mexico. The plan was for Mexico to cover the cost of the wall. Critics noted that this would deeply impact trade with America’s number one partner. However Mexican President Enrique Peña Nieto flatly refused to consider this option, and even cancelled a scheduled state visit over the issue.
In response, Trump then called for a twenty percent tariff on imports. This proposed action would upset the current balance of trade between the United States and the rest of the world. Higher import taxes will slow down sales into the American market, and hurt foreign economies. Additionally, the American public wants the lower prices that are available through Mexican and Chinese manufacturers. This is a recipe for a recession, the implications of which the world economy is only now starting to recover from.
World Angered by Trump’s Stand on Immigration
Following the Mexican border issue, Trump then took on immigration from the Middle East. His executive order suspended privileges for individuals born in seven high risk countries. Unfortunately, the Trump team drafted and enforced the order within hours, and several permanent residents ended up stranded while overseas. This caused a backlash both in America and from several foreign states. Finally, Trump fired the Attorney General noting that she would not enforce the order. Investors are waiting to see if this decision will result in sanctions from the world community.
Why Is Gold Trading at a 10 Week High?
Gold is traditionally the asset that does best when the world faces uncertainty, because it is a universal currency. In the event of a serious economic or political upheaval, gold will continue to hold value. It is also fairly portable. Investors may hesitate to commit resources to a single asset in the near future. This could last until they determine the winners and losers from Trump’s political gambits. If the Trump administration continues to reverse American policy, gold will continue to do well.