Some of Trump’s advisers seem to be supporters of the gold standard. What does it mean for the global monetary system and the precious metals market?
Everyone who saw photos of his penthouse knows that Trump definitely loves precious metals. What is more, the new president also seems to be a supporter of the gold standard. On the campaign trail, he once 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.”
Moreover, Trump surrounded himself with a few people who believe that a return to the gold standard could be beneficial for the economy. At the end of 2016, media reported that Trump met with John Allison from the libertarian Cato Institute who supports abolishing the Fed and a return to a private banking system. In one of his papers, Allison wrote that:
“We need a private, free-banking system based on a market standard such as gold. If the United States had continued with the classical gold standard instead of having instituted a government money monopoly in 1913, we would have learned through experimentation, as all markets do, and would have a radically better financial system and higher economic growth today”.
Mickey Mulvaney, who is to lead the Office of Management and Budget, and Steve Bannon, a senior adviser to the president, are also considered to be supporters of the gold standard.
But would Trump adopt the gold standard and what would it mean for the gold market? Well, the anticipation of such a policy could boost the price of gold. However, investors should remember that if the greenback was backed by gold, it would imply that the government would set the price of gold.
Although a global gold standard could resolve the problem of currency manipulation so hated by Trump, such a reform seems unlikely. The gold standard would restrain fiscal deficits, while fiscal stimulus and incurring debts in order to accelerate economic growth seem to be the priority of the new administration. The move would also be in conflict with Trump’s opinion that the U.S. dollar is too strong.
The bottom line is that some of Trump’s advisors seem to support the return to the gold standard. However, the move is currently unlikely and even if it happened, it would not necessarily be positive for gold bulls.
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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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