At first glance, it seems unreasonable to assume that one person can single-handedly have such a huge impact on the precious metals market.
Even when that person is the president of the United States.
Bloomberg reports that there have been gains in the gold market following the inaugurations of six out of the past seven presidents.
The average gain observed after each inauguration is about 15%. This average drastically outperforms the S&P 500, which loses about 1% during the same time period.
But no other president has had a greater impact on the markets than President Trump.
Without a doubt, Trump is known to ruffle some feathers. He caused quite a commotion during both his 2016 presidential campaign and also his first months in office.
But his words have the power to shake the markets and send tsunami waves of concern coursing through investors.
And nothing causes people to run to precious metals faster than commotion and uncertainty.
Even though precious metals, gold especially, see a jump in prices every January, Trump’s words leading up to and on Inauguration Day heavily intensified the demand for safe haven metals.
Jonathan Rose, president and CEO of Capital Gold Group, elaborates more on his bullish outlook for precious metals:
We don’t have to look far these days to find conflict and uncertainty. It’s at our very doorstep. As news headlines continue to jar people into today’s reality, it’s important to safeguard against the unknown and that’s exactly what gold provides.
In recent weeks, precious metals have been riding a volatility rollercoaster.
But despite a general stagnant trend in growth, the overall outlook remains bullish — especially for gold.
North Korean Missiles Forebode… Prosperity?
The Trump administration’s firm stance against threats to national security and the looming potential of a North Korean missile strike could mean the greatest opportunity for precious metals in decades.
In the past month, the heightened tensions between the U.S. and North Korea has already begun to spook the markets, spiking gold prices up by $50.
In recent weeks, North Korea has launched three missiles and has ignored global pleas for a cease-fire.
Since the start of the year, the restless dictatorship has launched a total of 12 missiles over the course of nine tests.
These blatant and dangerous displays of strength have prompted China, Japan, South Korea, and the U.S. to work together diplomatically to urge North Korea to alter its apparent course of action.
However, the combined efforts of the nations have been fruitless as the North Korean government is intentionally ignoring the world’s protests.
The North Korean refusal to cooperate has prompted the Pentagon to respond to the threats earlier this month with its own militaristic display of strength — the successful test launch of a weapon that’s specifically designed to shoot down intercontinental ballistic missiles.
In addition to that, the U.S. Air Force sent another clear message of U.S. military capabilities to North Korea by flying two B-1 bombers around the Korean Peninsula.
During periods of armed conflict, the demand for gold as a safe haven asset drastically increases, as we’re seeing now and have seen throughout history.
For example, in the week following Sept. 11, 2001, over $1.4 trillion was lost in the stock market and the demand for gold as a source of financial protection boomed.
Spot gold stood at over $285 per oz. before the Sept. 11 attacks and closed that same fateful day at over $1,820 per oz.
International conflicts always threaten the strength of the dollar, reminding investors of their love for the yellow metal as a safe, durable, and internationally accepted currency.
Other Recent News That Affects Precious Metals
Just last week, gold rose and finally recovered from its lowest level in nearly six weeks. This recovery came before the much-anticipated speech by Federal Reserve Chair Janet Yellen on whether the U.S. will continue to raise interest rates throughout the rest of the year.
Before Yellen’s address at London’s British Academy, the dollar fell nearly 1% compared to other major currencies.
Yellen said that she would be sticking to the plan to raise interest rates gradually and that inflation has continued to run below the Fed’s objectives.
Phillip Streible, a senior commodities broker for RJP Futures in Chicago, had the following to say:
Maybe gold was anticipating a much harder stance from Yellen and that’s why we’re rallying slightly rather than continuing to sell off.
Gold futures for August have risen 0.5% to $1,252.20 an oz. since Yellen’s speech.
It remains imperative that we keep an eye out for changes in geopolitical tensions.
Gold thrives in uncertainty. And increased uncertainty in the near term should continue to steadily push gold prices higher and higher.
This was true a few months ago when the allegations of ties with Russia cast a shadow over Trump’s first five months in office. And also, while the British government’s looming Brexit talks fueled concern about global stability, too.
Tensions have risen even more as the Supreme Court handed a victory to Trump by reviving parts of a travel ban from six Muslim-majority countries.
In these instances, the price of gold rose every month (except in June) as investors ran to precious metals for greater financial security amid geopolitical turbulence.
Although gold may be the most popular, it isn’t the only precious metal that’s had spikes in pricing during these uncertain and tumultuous times. Each of the following metals also recently recovered from six-week lows:
- Silver rose 0.8% to nearly $17 per oz.
- Palladium rose 0.4% to over $868 per oz.
- Platinum climbed by over 1% to $922 per oz.
The Bottom Line
Despite all of his feather-ruffling remarks, Trump became the first major party candidate in more than half a century to advocate for a return to the gold standard for the U.S. dollar during his campaign.
Most mainstream economists agree that the idea is completely unrealistic and unworkable.
But for much of American history, it was a firmly held universal belief that real money ought to be gold or at least be redeemable for gold or another precious metal.
The gold standard is a way of valuing money that has been used at various points in American history and goes back to the very beginning of the Republic — a gold and silver standard.
Gold is mentioned in the U.S. Constitution. And depending on how the Constitution is interpreted, gold is supposed to be the basis for our money.
Simply put, it means that the value of the dollar, or any currency on the gold standard, is fixed to a certain amount of gold.
A return to a gold standard won’t happen anytime soon. But with all of the impending global conflicts, more people are turning to precious metals as a secure source of wealth. And that is close enough for now.
Since gold and other precious metals don’t intrinsically correlate with the stock market, they operate as a reflection of investors’ demand for safety and security.
As geopolitical tensions continue to capture our attentions, the outlook for Trump’s precious metals market remains bullish.
That’s all for now.
Until next time,
John Peterson
Pro Trader Today