In the wake of Donald Trump’s triumphant return to the White House, the financial landscape is buzzing with speculation. In a previous post, I highlighted the surge in certain stocks immediately after Trump’s victory, showcasing the potential for lucrative gains in a post-Trump era. However, one commenter expressed their skepticism, opting to stick with gold and silver instead. This decision proved to be a costly one, as gold experienced a dramatic plunge, referred to as the “Great Gold Puke” by The Market Ear, the day after Trump’s victory. But why the sudden downturn?
The answer lies in Trump’s signature campaign slogan: “Trump will fix it.” This promise extends beyond domestic issues to encompass a global shift in geopolitical landscape. Trump’s policies aim to mitigate the heightened geopolitical risks that have plagued the world for years, from the ongoing Russia-Ukraine conflict to tensions in the Middle East and the Taiwan Strait.
Signs of a New Era: Peace Takes Center Stage
The geopolitical risk premium, a key driver of gold’s price, is already starting to ebb. Hamas has declared a ceasefire in its conflict with Israel, while Russian President Vladimir Putin has extended congratulations to Trump and expressed openness to peace talks aimed at ending the Ukraine war. Furthermore, the potential for peace between the U.S. and Russia holds significant implications for global stability, given Russia’s deep ties to Iran, China, and other pivotal nations. China’s President Xi has also reached out to Trump with an olive branch.
If Trump manages to broker peace in Eastern Europe and the Middle East, while also calming tensions in the Taiwan Strait, the resulting reduction in geopolitical risk could significantly dampen gold’s appeal as a safe haven asset.
Trump’s Domestic Policies: Deflationary Force
While some might argue that government spending will fuel inflation, a closer look at Trump’s proposed policies reveals a deflationary potential. His focus on tariffs, often seen as a regressive tax on consumers, will likely have a cooling effect on inflation. Similarly, Trump’s plans to deport millions of illegal immigrants will impact sectors like housing, reducing demand and ultimately putting downward pressure on prices.
Furthermore, the advocacy of Robert F. Kennedy Jr. against chronic diseases, aimed at improving American food policy, promises to reduce healthcare costs by preventing countless cases of diabetes and other chronic conditions.
Elon Musk, a close ally of Trump, has voiced his support for slashing the number of federal employees and streamlining government operations. Such measures could further contribute to a deflationary environment.
A Shift in Strategy: From Gold to Growth
Given Trump’s track record and the growing momentum behind his policies, a shift from gold to growth-oriented investments seems prudent. Trump’s landslide victory, coupled with the support of highly competent figures like Elon Musk, suggests that his agenda has the potential to be realized.
The market is already anticipating these changes. Trump’s victory has spurred expectations that China will need to stimulate its economy more aggressively, as its ability to export goods to the U.S. will be hampered by Trump’s tariffs. This increased stimulus will likely benefit companies operating within the Chinese domestic market, presenting attractive opportunities for investors.
In conclusion, Trump’s second term promises to be a transformative era, shaping the global economy and financial markets in profound ways. While gold may face headwinds due to Trump’s policies, the potential for growth in China’s domestic market and elsewhere presents exciting opportunities for investors willing to navigate this new landscape.
