Donald Trump Is Back as the 47th U.S. President. Here’s What It Means for Gold

Trump will now once again be the 47^th President of the United States of America (USA) and has also secured Senate control. He also pledged to help America to "heal".

Trump's victory will also have an impact on the precious yellow metal---gold.

Gold has gained nearly +32% in U.S. Dollar terms (USD) and +26% in Indian Rupee (INR) terms so far (of November 5, 2024).

The future trajectory for gold would depend on the outcomes of the policy decisions the 47^th U.S. President makes.

Donald Trump's triumph may prove disruptive for the world with his protectionist policies, whether it is higher tariffs, reducing corporate tax rates, issuing visas to foreign nationals, pushing other countries to reduce trade barriers, potentially shifting supply chains away from China to more favourable countries like India, resorting to fiscal expansion, and more -- all in the endeavour to "Make America Great Again". He would try to re-industrialise America once again in a sense.

To keep the economy buoyant and ensure growth continues, Trump may also push the U.S. Federal Reserve to keep interest rates relatively low, as inflation has come near the 2% target now (after hitting a 40-year high in January 2022).

The pro-Trump sentiments have already led to a stronger USD (famously known as the greenback) inching up of the U.S. 10 treasury yields, and steeper yield. All this, popularly known as the 'Trump trade', is unlikely to roll back with Trump's victory - on the contrary Trump trade would surge.

As regards geopolitics, Trump's regime may mean to unsettle the geopolitical scenario further.

In the ongoing tensions between Israel and Iran (as a consequence of the Israel-Hamas war and Israel-Hezbollah conflict), Iran is already fearing more strikes on its soil and sanctions (as the U.S. continues to support Israel). Escalations would have far-reaching ramifications in the Middle East.

In the ongoing Russia-Ukraine war, a Euronews report suggests that some Ukrainians too fear that Trump's victory could imperil their future.

Besides, it's common knowledge that the U.S. shares strained relations with China. Moreover, there are tensions between China and Taiwan, China and the Philippines, as well as North Korea and South Korea.

Broadly Trump's unpredictable nature and, at times, not going by the rule book means an uncertain geopolitical scenario ahead.

The BlackRock Investment Institute's latest Geopolitical Risk Dashboard is also showing that the geopolitical risk remains structurally elevated.

The world is entering the third geopolitical era after the Cold War and post-Cold War eras and is seeking a new equilibrium, observes BlackRock. With ongoing competition, there is a significant risk of conflict.

Against the aforesaid backdrop, the spotlights would continue to be on the precious yellow metal. Simply put, gold would continue to exhibit its sheen.

However, as the uncertainty about who becomes the 47^th President of the United States is out of the way as the results are clear, some interim correction in gold (in USD terms) cannot be ruled out.

The World Gold Council (WGC) has observed that even a stronger U.S. Dollar -- typically seen during the stagflation period -- hasn't dampened the sentiments toward gold.

If interest rates are kept low to keep the growth momentum and inflation kicks in again, it would also bode well for gold.

As per the WGC gold prices over the longer horizons have been mainly driven by an economic component, proxied by global nominal GDP, coupled with a financial component, proxied by the capitalisation of global stock and bond markets, that balances the overall relationship.

Also, here are certain factors that are likely to work in favour of gold:

• Chances of geoeconomic fragmentation

• The possibility of supply chain disruptions, which poses a major upside risk to inflation, particularly imported inflation

• Expansionary fiscal policy

• Chances that global economic uncertainty

• Burgeoning global debt, which includes borrowing of the government, corporates, and households. As per the IMF, the global public debt is very high and will approach 100 per cent of GDP by 2030

• High likelihood of major terror attacks as well as an increase in cyber-attacks

Considering the aforementioned and many other factors, central banks of the world are also continuing to add sizeable amounts of gold as a part of their reserve management.

The central banks of BRICs are planning to keep 40% of reserves in gold. Among the BRICs and globally, India and China -- traditionally the largest consumers of gold in the world -- are also adding gold to their reserves. So, the central bank gold purchases would also be a positive for gold.

As a smart investor, you should not be deterred from buying gold even though prices have surged.

In times of escalating geopolitical tension, increase in public debts, and economic uncertainty, gold would prove its trait of being a safe haven, a hedge, and a store of value.

The Year-on-Year (Y-o-Y) performance of three key asset classes -- equity, debt, and gold -- also shows that you cannot bank on only equity (a high-risk asset class) for your portfolio.

In the current calendar year gold, has outperformed even equities (a high-risk asset class) -- just as it did in 2019, 2020 and 2022.

How much gold prices increase further?

Well, that will depend on the kind of policies Trump, the 47^th President of the United States, Donald Trump follows once he begins his term after the inauguration on January 20, 2025.

The long-term uptrend exhibited by gold cannot be ignored and highlights the importance of strategically owning some gold in your investment portfolio.

Allocate to Gold Strategically

It makes sense to allocate around 10% to 15% of your entire investment portfolio to gold and hold with a long-term view (of over 8 to 10 years) by assuming a moderately high risk.

With this tactical allocation, gold will prove its worth as an effective portfolio diversifier.

Invest in Gold the Smart Way

I suggest investing in gold the smart way, in the form of Gold ETFs and/or Gold Savings Funds as against buying gold bars, coins, jewellery, etc., as physical gold involves high storage costs and risk of theft or being misplaced.

That said, if you are considering buying for your own wedding or your child's wedding, you may go ahead with it.

Holding some gold as an investment would prove to be sensible in the long term.

Be thoughtful in your approach.

Happy Investing!

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Disclaimer: Investment in the securities market are subject to market risks, read all the related documents carefully before investing.

This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.