Trump has been president for more than two weeks. What has he done so far and how will it affect the gold market?
Since the inauguration, Trump has introduced many policy changes. We have already discussed his opening executive actions, so let’s focus on the subsequent shifts. The most important reforms occurred in two areas. First, President significantly tightened the immigration policy. In particular, Trump slashed refugee admissions, blocking the entry of travelers from war-torn Syria, Sudan, Somalia, Iraq, Iran, Libya and Yemen. He also signed an executive order to build wall with Mexico, which may be forced to reimburse it through a 20 percent tax on all its exports to the U.S.
Second, Trump conducted some structural reforms: he declared the end of Obamacare, introduced a freeze on federal workers, accelerated the environmental review of infrastructure projects, and signed an executive action to revoke two regulations for every one enacted.
What is missing is the action aiming at stimulating economic growth, increasing spending on infrastructure (except the Keystone and Dakota Access pipelines) and cutting taxes. Instead, we heard a lot of comments about an “overvalued dollar” and “serious concerns” about the North American Free Trade Agreement. These remarks made financial markets worried about the outlook for global trade and the greenback, which helped the shiny metal. Although the rhetoric from the new administration may be unsettling for the investors, the recent economic reports look encouraging, which may strengthen the reflation bets on the U.S.
The key takeaway is that Trump has recently undertaken a lot of executive actions. He has also offered many comments on almost every topic. So far, his actions disturbed the markets, but he may ease his stance at some point, or simply turn the focus on tax cuts or infrastructure spending. The struggle between fear about the trade policy and hope about fiscal policy is probably the main reason behind the hesitation of gold traders about the future direction of gold prices. You see, the medium-term macroeconomic outlook seems to be bearish for gold, but it is reasonable to hold some bullion as a hedge against Trump’s controversial executive orders. Having said that, investors should remember that the beginning of each term is a bit nervous, but over the time the uncertainty should diminish. Stay tuned!
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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.
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