Donald Trump rode into the Oval Office with one simple campaign promise: to make America great again. Yet, nearly three months into his presidency, Trump is learning that making America great again takes time.
Trump's agenda is jam-packed with reforms, many of which have yet to be tackled. For example, Trump's cornerstone reform involves rethinking individual and corporate taxes. He campaigned for a lower tax for individuals and corporations, as well as a simplified tax code. These measures are designed to allow corporations to keep more income to reinvest and hire, as well as put more money back into the pockets of consumers to boost our consumption-driven economy.
In addition, Trump would like to deregulate the banking and energy industries, promote domestic shale production, pass a decade-long infrastructure package, and reform healthcare. The latter point has turned into a sore spot for Trump and Congress, with an initial bill, dubbed the American Health Care Act, failing to garner enough support from Republicans in the House.
Trump is making gold great again
However, the Trump presidency is indeed making something great again: gold.
Earlier this week, the lustrous yellow metal hit a five-month high, closing above $1,270 an ounce for the first time since early November. A quick review of the 27 gold-mining stocks with market caps of $300 million or more as of April 11 shows that 23 are up year-to-date, with 20 of those gold stocks up by a minimum of 10%.
Though Donald Trump isn't the only reason gold stocks are up this year -- as a whole they've drastically reduced their costs, focused on their most profitable mines, and benefited from global growth -- he's certainly played a key role in pushing physical gold prices higher.
1. Trump's economic proposals promote inflation
Even if President Trump hasn't successfully passed any of his major reforms thus far, the simple fact that he's working toward a number of policies that would reignite growth is exciting for the gold market.
Now I know what some of you might be thinking: "Wait a minute, higher growth rates mean the Federal Reserve will probably tighten monetary policy, hurting the price of gold, right?" To some extent you're completely right. Higher interest rates increase the opportunity cost of owning gold by making it more appealing to own safer interest-bearing assets, such as U.S. Treasuries or bank CDs. However, a growing economy can also offer counterbalances to the negative impact of higher interest rates.
To begin with, a growing economy usually spurs inflation. In general, higher levels of inflation coincide with a more positive environment for gold. As the economy heats up, the Fed will expand the monetary supply, which makes each dollar already in circulation worth a little bit less, and makes buying an ounce of gold costlier. The expectation of higher inflation under a Trump presidency is keeping the negative impact of higher interest rates in check.
Also, a growing economy likely signals a growing demand for commodities, including gold, which has industrial and jewelry-related uses. Supply and demand may be an oft-overlooked driver of gold prices, but with the U.S. economy humming along, and supply from mining companies staying somewhat constrained following a four-year downtrend in precious-metal prices between 2011 and 2015, gold prices are benefiting.
2. Trump's political inexperience breeds uncertainty
In an almost ironic twist, even if Trump's policies don't come to fruition, physical gold can still benefit. This is because gold has been feeding off of the uncertainties caused by Trump's inexperience in political office.
Being president of the United States involves a learning curve for all who've held the title, but it's an especially steep curve for an individual who has no prior political or military experience. Trump approving attacks of a Syrian airfield last week and regularly questioning the actions of other nations, including allies of the United States, are the ammo that skeptics need to push gold prices higher.
Should Trump be unable to put his campaign promises into action and the U.S. economy flounders, then gold will probably thrive as it has in the past as a safe haven for investors to consider parking their money in until things improve. When it comes to Trump's policies, less truly can be more for gold.
3. Trump's contempt for foreign currency devaluation is a plug for gold
Trump has also been hypercritical of a handful of foreign countries, especially China. In particular, the president has suggested that countries like China have purposefully manipulated their currencies in order to devalue them against the dollar, encouraging Americans to import foreign goods, while making it more expensive for foreign countries to import U.S. goods. Long story short, Trump blames currency devaluations for a good chunk of our national trade deficit.
Interestingly enough, though, Trump also doesn't view the U.S. dollar as a true global currency -- at least he didn't in a February speech at the Conservative Political Action Conference, where he proclaimed there was "no such thing as a global anthem, a global currency or a global flag." In a roundabout way, Trump could be implying his favorability toward a currency-backed system that can't be manipulated. Namely, gold.
Last year, Trump wasn't so ambivalent about his feelings toward gold. In an interview with GQ Trump said, "Bringing back the gold standard would be very hard to do, but boy would it be wonderful. We'd have a standard on which to base our money."
Now, let's be perfectly clear: the gold standard has an infinitesimally small chance of coming back. In most respects it doesn't make economic sense, so you gold opportunists just stay seated in your chairs. However, Trump's commentary is a clear indication that he favors gold.
Onward and upward
A little over three months ago, I went on record suggesting that, with gold at $1,170 an ounce, it had a far better chance of rising $830 an ounce and hitting $2,000 than it had of losing $170 an ounce and falling back to $1,000. The lustrous yellow metal is already $100 closer to $2,000, and with Trump in the Oval Office it has more than enough catalysts to continue marching higher.