A second Trump administration's potential economic policies may drive global investors toward gold, according to analysts at Heraeus Group.
The upcoming November presidential election presents the United States with two fundamentally different paths, hinging on whether Donald Trump or Joe Biden prevails, notes the firm.
Heraeus says Trump's unpredictable nature and proposed economic measures could lead to market shocks, geopolitical risks, and rising inflation. Specifically, they highlight his trade policies as a factor that could hurt the US and global economy threat.
They note that unlike the Biden administration, which has maintained many of Trump’s China tariffs and raised tariffs modestly on some Chinese cleantech imports, Trump plans to escalate the trade war. He proposes a 10% tariff on all imports from all countries and tariffs exceeding 60% on all Chinese imports.
The US-China trade war between 2018 and 2020 saw gold prices rise as investors sought safe-haven assets amid prolonged negotiations and geopolitical tensions. Gold’s appreciation closely correlated with tariff increases. Global ETF holdings of gold grew significantly during this period.
Additionally, Trump’s potential interference with the Federal Reserve could further boost gold, state the firm. His first term saw frequent attacks on Fed Chairman Jerome Powell's decisions.
They explain that proposals from Trump’s campaign suggest undermining the Fed’s independence and appointing dovish members to the Federal Open Market Committee, which could lead to expedited rate cuts, loose inflation control, and a weakened dollar. Such actions would increase demand for gold as a safe-haven asset, reinforcing its value amidst economic uncertainty.
" Any manoeuvres extending executive authority over the Fed could shake market confidence in US monetary policies, further boosting gold prices," they conclude.