Why is Trump great for gold

No, the answer isn’t because he used so much of it building Trump Tower in NYC.

Let’s review the recent election that sent President-elect Trump to Pennsylvania Avenue.

There was very little substance from either candidate, just attacks lobbed back and forth. It was a street brawl pitting a billionaire businessman populist against an entrenched Washington insider who couldn’t decide whether she was a moderate or progressive.

In the end, Trump said the right things to the right people. And after predictions of market doom in a Trump presidency, the market has been in rally mode ever since.

Add to this fact that it’s likely the Federal Reserve will raise rates at its mid-December meeting, especially given Q3 GDP coming in at 3.2 percent.

Now whether that 3.2 percent is a parting gift to Obama and a “tailwind” for Trump from Obama’s economic team and will be adjusted lower after he leaves office, or whether it’s true (which I doubt), it doesn’t really affect people in states that have been ravaged in the past decade or two.

Good news is bad news sometimes

The fact is, this GDP seems to seal the deal on a rate rise. And that should be bad for gold, right?

A strong economy means there are more investment sectors leveraged to growth than gold is. Mid caps. Small caps. Junk bonds. Tech. Healthcare.

But here’s the deal: the rate rise will hurt growth, and this economy is still too weak to muscle through it. It will falter and then it may fall hard. All this talk of a resurging economy is great for news shows, but there’s little sense that Americans and American corporations are back in the swing of things.

Cause to celebrate? Not really. Black Friday shoppers spent less than they did last year. Does that sound like a rebound?

Also remember that Q2 GDP came in at 1.4 percent and Q1 GDP came in at 0.8 percent. After a 3.9 percent Q2 GDP in 2015, growth fell to 2.0 percent, 1.4 percent and then to 0.8 percent. And there was no rate rise in the period. A rate rise is going to play havoc on the economy.

What’s more, the dollar is strengthening into the rise, which is why gold is off its recent lows.

It’s the politics, stupid

On the political side, Trump is really an unknown. He’s not a career politician and he isn’t a “rags to riches” story, so he doesn’t really identify with the common man from experience. He has already modified his positions on a number of his most vociferous points.

He’s a populist, but his VP is a conservative. The Speaker of the House is a conservative. The Senate Majority Leader is a conservative. This is going to be very interesting. For all Trump’s plans, Congress may simply shut him down and run their own agenda. Fewer were in Trump’s camp than he had supporters.

Remember that George W. Bush came in with no conservative support but with neo-con Dick Cheney as his VP. And Cheney pretty much ran the whole shebang.

The point is, no one really knows what’s going to happen. But as far as Trump’s cabinet is concerned, there will likely be many spirited debates with Trump the final arbiter. And I’m sure he won’t be slow in firing those who don’t work inside his plan.

The point: buy gold

What this boils down to is there’s political uncertainty — an untested firebrand with little governing experience and a cabinet that is pulled from various wings of the party — and that means government stimulus for the economy is in question.

On the business side, this rate rise will prove to be too much too soon and send the economy back down to less rosy numbers — hopefully not a recession. That will not make Wall Street happy, and there will be more volatility in the stock and bond markets while all this sorts itself out.

While the markets hate uncertainty, they do love gold when uncertainty raises its head. And we have four years of uncertainty ahead of us.

Gold may not be a big story now, but that’s a good thing — the talking heads aren’t talking about it, so it’s a quiet time to start accumulating at these prices. Don’t wait.

— GS Early

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