Gold prices’ slide in response to Tuesday’s election results could be a head fake. From inflation to geopolitical uncertainty, the prospect of a second Donald Trump presidency only makes the investment case look stronger.

The price of gold fell nearly 3% following the vote, after rallying this year. It hit a record high as recently as Oct. 30.

One reason for the reversal is that Trump’s clear-cut win removed uncertainty hanging over U.S. markets and politics, weakening the case for haven assets. A bigger factor, however, was a spike in interest rates that came as markets digested the prospect a second Trump term could lead to higher inflation. Many investors buy gold as an alternative to bonds, and when bond yields rise, gold becomes comparatively less attractive.

By Friday, yields on 10-year Treasury debt had eased, and gold regained some of its losses. Front-month gold futures closed at $2,688 an ounce, according to Dow Jones Markets Data. That was up from the low of $2,668 following the election result, but still below the recent record of $2,788.

Most of the arguments gold bulls make—and have been making throughout 2024—look stronger after Trump’s win.

“We are still relatively constructive on gold,” says Taylor Krystkowiak, investment strategist at Themes ETFs. “Why does gold go up? It’s geopolitical uncertainty, it’s deficit spending, and it’s inflation. Right now all those stars are aligned.”

The inflation argument might seem counterintuitive, given that over the past few days, gold has appeared to sell off due to worry over inflation sending bond yields higher. But inflation’s relationship to gold is complicated and can push both ways.

In fact, most investors regard inflation worries as a classic reason to buy, not sell gold. It is no accident that two of gold’s biggest rallies on record—the current one and a surge in the late 1970s—have come when inflation was a critical issue on investors’ minds.

Why is Wall Street so worried Trump’s win will spur more inflation? There are several reasons.

During the campaign, Trump promised a 10% tariff on all imports and a 60% levy on those coming from China. While that proposal may well be watered down, whatever import duties Trump does put in place would almost certainly push up prices for U.S. consumers. Trump’s plans to deport undocumented workers would push up labor costs for many U.S. companies.

His tax plans also pose risks. Trump pledged to extend his signature 2017 Tax Cuts and Jobs Act to spur growth. But the law’s tax cuts aren’t offset by tax increases elsewhere, so they would add more than $4 trillion to the national debt, according to one independent analysis—another potential inflation driver.

In addition to higher prices and budget deficits, the Trump political brand, built on unpredictability and the promise of fundamental change to U.S. institutions, could add political and market anxiety. That might benefit gold, often seen as the best place to take shelter when markets get rough.

Trump’s potential to inject uncertainty into markets was on display Wednesday when Fed Chairman Jerome Powell was forced to respond to Trump criticism by reminding reporters Trump didn’t have the power to fire him. Trump has called for curtailing the Federal Reserve’s political independence. Any battle over the powers of the U.S. central bank would be bound to roil markets.

Trump’s helter-skelter image is one he has deliberately fostered. When asked last month if he would use force to deter China’s leader Xi Jinping from moving against Taiwan, Trump responded: “I wouldn’t have to, because he respects me and he knows I’m f— crazy.”

In other words, like him or not, Trump’s win will keep markets on edge. “It’s a little bit of a chaos grenade,” says Krystkowiak.

Analysts warn both sides are likely to ‘take even more risks’ in the dying days of the Biden administration

With the Middle East teetering on the brink, the re-election of Donald Trump to the US presidency has raised fears of a renewed clash between Israel and Iran in the 10-week period leading up to his inauguration – despite him promising in his victory speech to “stop wars”.

Analysts warn that Israeli Prime Minister Benjamin Netanyahu, emboldened by the electoral success of his staunch ally Trump, may be tempted to act decisively against Tehran during the dying days of the Biden administration.

Shortly after the US election result became apparent, Trump and Netanyahu discussed “the Iranian threat” on a phone call alongside the need to enhance Israel’s security, according to a statement from the Israeli prime minister’s office.

The US president-elect wants the wars in the region “to end as soon as possible … with a decisive victory” for Israel, Trump campaign spokeswoman Elizabeth Pipko said in an interview with Israeli broadcaster Keshet 12 on Wednesday.

Netanyahu’s recent dismissal of Defence Minister Yoav Gallant, on the eve of Trump’s electoral win, only made the situation “even more precarious”, according to Mairav Zonszein, a senior Israel analyst at the New York-based Crisis Group risk consultancy.

“The chances that both sides will take even more risks” during the final weeks of outgoing President Joe Biden’s administration have increased, she said in a post on X.

“I think it’s safe to say that between Trump and Netanyahu, we are squarely going into the ‘escalation towards de-escalation’ paradigm.”

While Trump’s unpredictability remains a factor, he is likely to “urge Israel to wind up” its wars in Gaza and Lebanon before he officially takes office in late January, said Barbara Slavin, a distinguished Middle East fellow at the Stimson Centre think tank in Washington, citing remarks Trump made on the campaign trail.

Analysts believe Netanyahu is confident any agreements on ending the Gaza war which are reached post-inauguration will not compromise his long-standing goal of preventing Palestinian statehood.

On Tuesday, as Americans cast their votes, the Israeli Defence Forces announced that the division of northern Gaza into two parts had been completed.

“This time there is no intention to allow the residents of the northern Gaza Strip to return to their homes and that humanitarian aid will regularly enter the southern Gaza Strip – since there are no more civilians left north of Gaza City,” it said in a statement.

Slavin told This Week in Asia that Trump “will let Israel continue to occupy Gaza” and is likely to care “even less about Palestinian lives than Biden”.

She speculated that he might also give Israel a green light “to annex the West Bank or try to revive his ‘Deal of the Century’”, proposed in 2020, which would grant Israel 87 per cent of the occupied Palestinian territories while offering a disarmed Palestinian state US$50 billion in development funds over the span of a decade.

Palestinian analyst Ahmed Fouad al-Khatib, a senior fellow at the Atlantic Council think tank’s Scowcroft Security Initiative in Washington, said Trump may “very well succeed” in ending the war in Gaza.

“But the price he’ll offer Bibi, immediately or in the near term, will be the annexation of the West Bank, forever killing the possibility of a Palestinian state”, he said, referring to Netanyahu by a popular nickname.

Zonszein noted that Trump’s former ambassador to Israel, David Friedman, had recently published a book “which is effectively a blueprint for how Israel should annex the West Bank, perfectly aligned with the far-right in the Netanyahu government”.

She described the book, One Jewish State: The Last Best Hope to Resolve the Israeli-Palestinian Conflict, as a “window into what Trump … may help Israel do”.

Normalisation redux?

Faced with public outrage over the ongoing conflicts in Gaza and Lebanon, Arab leaders are expected to tread cautiously in their dealings with a second Trump administration, even as they continue to pursue improved relations with Iran.

The Saudi foreign ministry quickly congratulated Trump following his electoral victory, with Crown Prince Mohammed bin Salman – alongside Netanyahu – being among the first world leaders to call him.

During the call, Saudi Arabia’s de facto leader “expressed the kingdom’s aspiration to strengthen the historical and strategic relations” with the US, according to an official statement released later that made no mention of the wider crisis in the Middle East.

Independent Saudi analyst Aziz al-Ghashian interpreted this response as a sign that Riyadh will be “keen but measured” in its cooperation with the new administration.

Despite recent declarations from Saudi Foreign Minister Prince Faisal bin Farhan that normalisation with Israel is “off the table until we have a resolution to a Palestinian state”, Stimson Centre’s Slavin expects Trump will try to add Saudi Arabia to the 2020 Abraham Accords – under which Bahrain, Morocco and the United Arab Emirates established diplomatic relations with Israel – using “massive bribes of weapons and nuclear technology”.

However, analysts warn that continued Israeli aggression towards Palestinians could destabilise the already fragile pro-US regimes in the region – concerns that leaders such as Egypt’s President Abdel Fatah el-Sisi and Jordan’s King Abdullah, who already enjoy a personal rapport with Trump, are expected to communicate to him.

Trump’s incoming administration is also unlikely to pursue a peace deal with Iran, despite his recent comments suggesting openness to negotiations. His team is filled with anti-Iran hawks, and reports of Iranian plots against Trump – stemming from his order to assassinate Qassem Soleimani – have likely “further antagonised” the incoming US president against Iran, according to Farzan Sabet, a senior research associate of the Global Governance Centre, a Geneva think tank.

The overall security landscape in the Middle East suggests that Trump’s administration will adopt a hardline stance against Iran, Sabet said.

The US and Iran “are more firmly on the path to direct conflict than at any time” since the end of the Iran-Iraq War in the 1980s, he said.

In response to Trump’s election, Iranian foreign ministry spokesman Esmaeil Baghaei said on Thursday that it presents an opportunity to “review previous wrong policies”. reflecting the bitter experiences with past US administrations.

“We have very bitter experiences with the policies and approaches of different US governments in the past,” he added.

While Slavin believes that Trump does “not want a war with Iran and so will restrain Israel from starting one that drags the US in”, she cast doubts over his ability to negotiate a favourable deal.

Much will depend on whether Iranian Vice-President Javad Zarif and other officials in Tehran can devise an agreement “that makes Trump look good, without making Iran look like it’s caving completely”, she said.


Read the complete article HERE.

Price falls as investors take profits from earlier gains, but longer-term prospects are bullish due to trade and inflation uncertainties

Demand for gold will continue to rise following Donald Trump’s victory in Tuesday’s US presidential election, which will increase trade tensions and uncertainties for the US dollar and US dollar-denominated assets, analysts said, predicting that gold prices will hit fresh highs despite a recent fall.

According to GF Securities, so-called “Trump deals” since the start of October took many expectations into account, leading to a strong US dollar, rising gold prices, falling oil prices, falling copper prices, and volatile US stocks, and the market was likely to trade in the opposite direction in the short term.

Shen Jianguang, chief economist at JD.com, said that in response to Trump’s election “virtual assets such as bitcoin and US bonds have risen sharply” and the price of gold would also climb in the longer term.

Shen said that reflected a broader decline in trust in the US dollar among governments and investors around the world.

“For many regions, particularly those with tense geopolitical relations with the United States, the status of gold, serving as a reliable safe-haven … store of value, is growing,” he said.

Gold has long been regarded as a hedge against economic and political uncertainty, particularly in a low-interest-rate environment. The price of gold hit a record high of US$2769.25 an ounce on October 29, having risen nearly 35 per cent this year. On Wednesday, spot gold dropped 3.1 per cent to end at US$2,659.24 an ounce.

In a report released last week, UBS forecast the price of gold would reach US$2,900 an ounce by the end of the third quarter next year, with a Trump victory to accelerate that climb given his views on tariffs, government spending, taxes and interest rates.

Many international investors have been nervous about chasing gold prices higher, Goldman Sachs Research analyst Lina Thomas wrote in a report last week.

She said the price is set to rise to US$3,000 an ounce by the end of next year.

Shen said gold will reach new highs in the long term, due to the impact of the US central bank’s increasingly lax monetary discipline on the US dollar’s global standing.

“First, the Federal Reserve’s quantitative easing in recent years has expanded its balance sheet to US$8 trillion; second, the US government has used the US dollar and tariffs as a tool for financial sanctions, causing many countries’ central banks to actively or passively dedollarise and turn to gold and virtual currencies,” he said.

Shen said Trump’s tariff policies would have an impact on global trade, especially for China. The yuan had already depreciated a bit in response, making gold more attractive for Chinese investors as a hedge against exchange rate and yuan asset uncertainty.

In the first three quarters of this year, gold consumption in China fell by 11 per cent year on year to 742 tonnes, according to the China Gold Association, which said high prices had put off consumers. Chinese consumers bought 400 tonnes of gold jewellery, a year-on-year decrease of 27.53 per cent, but they purchased 282.721 tonnes of gold bars and gold coins, up 27.14 per cent year on year, the council said.

Wendy He, the administration director of a private company in Guangzhou, said she bought gold bullion worth 50,000 yuan (US$6,979) through online banking while watching television coverage of presidential election votes being counted in Pennsylvania, a key swing state that pushed Trump closer to victory. She had already bought gold bullion worth 200,000 yuan the same way last month.

Read the full article HERE.

President-elect plans tariffs and tax cuts, as in his first term. There are risks with both, but also lots of caveats.

Key Points

Voters have re-elected Donald Trump in great part out of dissatisfaction with the economy under President Biden and nostalgia for the low inflation and prepandemic conditions of the former president’s first term.

To fulfill those voters’ hopes, Trump’s main economic tools will be the same as in that first term: tariffs and tax cuts. But there’s a difference. The tariffs he’s planning will be broader and higher, and the tax cuts more narrowly targeted.

The consensus of economists and investors is that tariffs will put upward pressure on inflation while tax cuts could spur growth and add to deficits, together tending to nudge interest rates higher. And indeed, long-term Treasury bond yields had risen recently on strong economic data and Trump’s improved polling, and shot up early Wednesday, along with stock-index futures, as Trump’s victory became apparent.

The first years of Trump’s first term were better for the economy than many expected on election night in 2016, and expectations could be similarly miscalibrated now. For one thing, he inherits a relatively benign outlook. Growth has been surprisingly strong while inflation has fallen substantially from its peaks, although prices are still high. The Federal Reserve is set to trim interest rates Thursday for the second time this year. This should keep recession risks to a minimum.

As for Trump’s own plans, he may not raise tariffs as much as threatened, opting for negotiations over trade war. Congress may water down his tax plans. Finally, presidents are seldom the main driver of economic performance. Trump’s policies may have less to do with how the economy performs over the next four years than larger forces and unexpected events, such as a crisis, a war or a boom driven by new technology.

Trade comes first

His first opportunity to make a mark will likely be on tariffs, where he can act without asking Congress’s permission. Even so, administrative procedures and negotiations could delay implementation. In his first term, 11 months elapsed between initiation of the case against China and imposition of tariffs. Tariffs may also be rolled into broader negotiations on extending the 2017 tax cut. 

Trump’s first-term tariffs had no noticeable effect on inflation because they were relatively modest, and globally subdued demand and investment and slack labor markets were pushing in the opposite direction. On the eve of his election, wages were rising just 2.4% a year. Bond investors expected future inflation to average 1.8%, below the Fed’s 2% target.

This time Trump has proposed much higher tariffs—at least 60% on China, and 10% to 20% on everyone else. Such a combination would lift U.S. tariff rates to their highest since the 1930s. And it would come when demand is brisk, supply chains are vulnerable to geopolitical conflict, and memories of inflation are fresh. Wages are growing 3.8% a year, and bonds see future inflation at 2.3%. 

This suggests tariffs could pose more of an inflation risk than in his first term. Morgan Stanley estimates Trump’s 60% and 10% plan would raise U.S. consumer prices 0.9%. That’s a one-off effect: Eventually, inflation should fall back to its underlying trend. 

But other factors could result in a smaller impact. Importers could absorb more of the tariff into their margins. The dollar could rise, offsetting higher import prices. Most important, some advisers say Trump is using tariffs as a negotiating tactic to lower other countries’ trade barriers, so actual tariff increases will be less than he has threatened. And if Trump sees tariff fears hurting stocks or pushing up interest rates, he may compromise. 

Goldman Sachs economists think Trump would raise tariffs on China by 20, not 60, percentage points, and will not impose an across-the-board tariff on other countries. In that scenario they think inflation excluding food and energy, using the Fed’s preferred price index, would fall from 2.7% now to 2.3% in a year, instead of 2% in their baseline forecast. That difference won’t stop the Fed from cutting interest rates, they conclude. Inflation at that level would still be lower than for most of the past three years.

Then come taxes

Portions of the tax law that Trump and congressional Republicans passed in 2017, such as for lower rates for individuals and businesses who pay their taxes on their individual returns, expire at the end of 2025 and they have given priority to extending the law. That would cost about $5 trillion over 10 years, the Committee for a Responsible Federal Budget estimates. The process is likely to consume a lot of next year.

Full extension shouldn’t have much effect on growth or interest rates because that’s already built into the behavior of investors and the public.

Not so with Trump’s other proposals, which have at times included lower corporate tax rates; exempting tips, Social Security benefits and overtime pay from taxes; and deductions for car loan interest and state and local taxes. These proposals would, the CRFB estimates, add about $4 trillion to the deficit over 10 years.

Tariff revenue would reduce that cost somewhat as would spending cuts, though Trump also plans some spending increases. 

The 2017 tax law was good for long-term growth because it simplified the tax system by lowering rates on income, profits and investment and narrowing tax breaks, said Kyle Pomerleau, an economist at the American Enterprise Institute. Trump’s new proposals won’t have the same benefit because they add back complexity via new tax breaks, he said.

Still, lower taxes should provide some boost. Deutsche Bank estimates that a unified Republican government would boost growth by 0.5 percentage point in 2025 and 0.4 in 2026 without higher tariffs. With a 60% tariff on China and 10% on everyone else, Deutsche estimates the net effect on growth becomes negative. 

Tax cuts would also add to the deficit and put upward pressure on interest rates. John Barry, rates strategist at JP Morgan, estimates Treasury’s current schedule of debt auctions is enough to fund next year’s deficit, but would fall $3.3 trillion short from 2026 through 2029, without extension of the 2017 tax cut. The shortfall would be even larger if the tax cut is extended and Trump’s plans are enacted.

If the Treasury starts upping auction sizes to finance larger deficits, that is likely to put upward pressure on yields. Barry estimates a unified Republican government would raise 10-year yields by 0.4 percentage point, of which the market had already built in 0.15 point through Friday.

But with the last fiscal year’s budget deficit at $1.8 trillion, triple the level of eight years earlier, even a Republican Congress may not give Trump all he wants.

“A Republican Congress is not going to bend over backward to exempt Social Security benefits or overtime pay from tax, both on the merits of those ideas, and the cost,” said Don Schneider, a former Republican congressional aide now at Piper Sandler. “There simply are not the votes to do that.” 

Still, Trump’s sway over Republican legislators has grown since his first term, and he has shown he can muscle through his priorities.

Regulations

Trump has proposed lighter regulation, for example of mergers and of the oil-and-gas industry. These ought to boost growth and business confidence and hold down inflation. But economists think the effects are too difficult to identify in the broader economy. For example, U.S. oil production and gasoline prices are driven mostly by global prices, which are in turn heavily influenced by OPEC, sanctions, Middle East conflict and Chinese economic growth. 

Similarly, while Trump’s plan to deport unauthorized migrants could, at the margin, raise wage and price pressure, the impact may not be noticeable given the size of the U.S. labor market. 

Trump’s economic agenda isn’t just about growth but also trying to restore the good jobs and healthy communities manufacturing once made possible while reducing dependence on China, a geopolitical adversary. “Yes, there’s a cost. In many cases, I think it is worth it,” said Scott Paul, president of the Alliance for American Manufacturing.

“Globalization produces disruption, dislocation, and destruction,” Robert Lighthizer, who was trade ambassador in Trump’s first term and will likely return in some role in the second, wrote last year. “Conservatives by contrast seek to defend traditional values and institutions, preserve the social fabric, and ensure the conditions for families and communities to flourish.”

Unlike GDP or inflation, these benchmarks for a Trump economy defy easy measurement. They are no less important.

Read the full article HERE.

Company executives can’t stop talking about the US election.

Earnings calls in recent weeks have been filled with talk of uncertainty about the aftermath of Tuesday’s election, which has delayed spending as potential policy changes loom large.

And things are more intense in this presidential election cycle. Mentions of “election” near the word “uncertainty” on S&P 500 companies’ quarterly earnings calls this year are markedly higher than they were before the 2020 election.

C-Suite Election Worries Grow in 2024

Mention of “election” near the word “uncertainty” in S&P 500 companies’ earnings calls each quarter

“Welcome to the Mad Hatter’s tea party,” Nicholas Pinchuk, tool maker Snap-On Inc.’s chief executive officer, said on the company’s Oct. 17 third-quarter earnings call. “Nobody knows what actually is going to happen, so you can’t even make a pronouncement.”

Much of the C-suite angst is over the risk of additional tariffs, particularly if Republican Donald Trump wins another term. Business leaders say new fees on imported goods could increase costs up and down the supply chain, and force some companies to rethink manufacturing and sourcing. Democratic candidate Kamala Harris’ support for higher corporate tax rates is also a source of concern.

It’s not just companies hitting the pause button until voters decide which party will control the White House and Congress.

A recent survey by research firm Circana found that 16% of US consumers said they would wait until after the election to start their holiday shopping, and 17% said they would spend more or less depending on who won.

Etsy Inc. CEO Josh Silverman said last week that the nonstop political noise is “an incredibly distracting mind-share event.”

House builder D.R. Horton Inc. said it wasn’t just higher interest rates holding back potential home purchasers. “The volatility of rates combined with general uncertainty during the election season is causing some buyers to stay on the sidelines in the near term,” CEO Paul Romanowski told analysts.

Car parts retailer O’Reilly Automotive Inc., mattress-maker Sleep Number Corp. and indoor-cycling specialist Peloton Interactive Inc. also cautioned about election-related sales sluggishness on their latest analyst calls.

Fewer people are traveling around the election, impacting airlines and hotel chains. Park Hotels and Resorts Inc., expects bookings to be down about 13% on election week and another 11% the following week as people stay close to home.

Bombarded by Campaign Ads

Companies are also finding it harder to get their messages across through the relentless campaign advertising.

“Media is more expensive,” Jim McCann, CEO of 1-800-Flowers.com, said on his company’s latest call. “The election does have a big, big impact on what we pay for things both digitally and in traditional media.”

The US political future also weighed on the minds of analysts monitoring earnings calls.

Chris McNally of Evercore asked on the General Motors Co.’s call about future electric vehicle losses, adding: “It’s sort of my way of asking the election question without asking the election question.”

CEO Mary Barra answered that later by saying GM — which has invested billions of dollars in EVs favored by one candidate and loathed by the other — is prepared to deal with any eventuality.

At least one chief executive is brimming with confidence no matter what the outcome.

“Both presidential candidates are now courting the crypto voter,” digital exchange Coinbase Global Inc. CEO Brian Armstrong said on his company’s third-quarter earnings call. “No matter what happens in this election, it’s going to be the most pro-crypto Congress ever.”

Read the full article HERE.

Higher interest rates mean that the next president, whoever it is, will find it much harder to reduce taxes and increase spending.

For all the bold talk of tariffs and price controls, the economic legacy of the next president will mostly depend on something far more mundane: the tax code — specifically, the 2017 Tax Cut and Jobs Act, much of which will expire next year. Whoever is in the White House, working with whichever party controls Congress, will need to decide whether to extend it, change it or let it expire.

Given that Donald Trump favors extending all of it, and Kamala Harris most of it, odds are that the TCJA will survive and most voters will keep their lower tax rates. If so, it may well be the last gasp of the free-lunch era — the delusion the US can cut taxes, increase spending, and never pay the consequences.

But America’s fiscal reality is catching up with its political reality. By the end of the next president’s tenure, if not sooner, politicians will have to start dealing with budget constraints again.

Ever since George H.W. Bush’s presidency, increasing taxes on anyone but the richest Americans has been unthinkable. This may explain why taxes rates have fallen for most Americans over the last several decades, even as the size of government has increased.

This also helps explain why it is so unlikely that either candidate will allow the TCJA to expire. Harris has promised to not increase taxes on anyone who earns less than $400,000, which suggests she will keep all the provisions from the law that apply those earners, who make up about 98% of the working population. Trump plans to make all the provisions of TCJA permanent. Both candidates are also promising tax cuts beyond those in that law, proposing to expand the earned income tax credit and the child tax credit (Harris), eliminate taxes on overtime or Social Security benefits (Trump), or end taxes on tips (both Harris and Trump).

On the spending side, Harris wants to add a new entitlement by having Medicare offer long-term care. She would increase some taxes for high earners as well as the corporate tax rate, and perhaps tax higher earners’ wealth, too.

Overall, Harris’ plan is considered more fiscally responsible — because it increases the primary deficit by only $2 trillion. Trump’s would increase it by $4.1 trillion.

These are both silly numbers, and the fact that the Harris number is less silly should not give voters or bond markets much comfort. Both parties suffer from their own delusions: Republicans that tax cuts and higher tariffs pay for themselves, Democrats that government growth can be funded entirely by higher taxes on rich people.

The question is how long markets will continue to indulge these fantasies. The inflation of the early 2020s, which was caused in part by excess stimulus spending, was a reminder of how reality can intrude. Another reminder may come in the form of rising term premiums as the election nears. Interest rates may fall a bit after the election, but historically speaking, big debt tends to increase rates.

Of course, some people argue that this time is different — but really, it’s the last 20 years that were different. Washington was able to keep spending because investors and foreign governments bought US debt no matter how expensive it got. That may be changing. Foreign appetite for Treasuries is waning both because of other nations face their own economic challenges, and because less trade overall means less need for US Treasuries. Now buyers tend to be investors seeking higher-yielding assets, which suggests that the government may not be able to count on selling its debt and offering such low rates for much longer.

It is possible that faster growth will pay for the debt. But that is a big gamble, especially in a less global and higher-rate environment. Another constraint on policy will be higher inflation, which is more likely with an older population and a more protectionist trade regime. The latest bout of inflation may also have made expectations less stable, pushing up term premiums. On the upside, higher inflation will erode the debt, but at what political cost? Recent history suggests it will be great.

A near zero-rate environment propped up the delusion that profligate fiscal policy was virtually cost-free to taxpayers and politicians alike. In a higher-rate environment, that delusion is harder to sustain. The CBO projects interest payments will take up nearly 4% of GDP in the next 10 years, and eventually exceed 6%. That assumes the 10-year bond rate stays at about 4%. If rates go to 5% or 6%, debt becomes an even bigger burden on the budget. At that level, simply rolling it over pushes up rates and starts to crowd out private investment.

Next year’s debate about the Tax Cut and Jobs Act may be the last one in which each side competes to be more reckless. The US is entering a higher-rate environment, with spending increasing and unfunded entitlements coming due, and demand for debt is changing. Something has to give: Everyone will have to pay higher taxes, or the government will have to spend less.

My bet is on the former. Either way, it’s the end of an era. In fiscal and monetary policy, as in an increasing number of corporate cafeterias, there’s no such thing as a free lunch.

Read the full article HERE.

The US presidential election is approaching, and the race between Kamala Harris and Donald Trump remains tight. The election outcome will significantly impact the gold (XAU) market, with key economic and geopolitical factors in the balance. Gold trades at historic highs, peaking at $2,790 on October 31, 2024. This article presents the movements in gold prices during historical events and discusses how these events may impact the gold price outlook. The price remains strong due to the US election and geopolitical uncertainty, and there are no signs of reversal in the short-term direction.

Gold Safe-Haven Status During Political Uncertainty

Investors have recognized gold as a reliable and safe-haven asset during political uncertainty. Its status as a store of value becomes more pronounced when global events introduce instability. In the context of US elections, policy shifts, and international tensions, investors turn to gold to protect their wealth from the potential devaluation of currencies and market volatility. The upcoming US presidential election on November 5, 2024, features a closely contested race between Kamala Harris and Donald Trump. Investors expect policy changes and geopolitical strategies that could ripple through the financial markets.

Gold Price Movements During US Election

The impact of political uncertainty on gold prices has been evident throughout history. Each administration’s decisions play a crucial role, from trade wars and changes in foreign policy to debates over energy investment and tariffs.


These decisions can influence the market’s perception of risk. During the current election cycle, uncertainty emerges from both candidates’ platforms. Trump focuses on aggressive trade measures, while Harris emphasizes domestic economic support and international alliances. This has contributed to maintaining gold’s appeal. Gold will likely remain attractive if questions about future policies and global stability persist. Investors will continue seeking it to mitigate risks in an unpredictable political landscape.

The monthly gold chart illustrates the impact of US presidential elections over the past four decades. It also highlights the geopolitical events that have contributed to significant gold surges during this period. The chart shows that gold price movements have generally been positive. However, the emergence of these events has triggered intense volatility in the gold market.

Key Historical Events Shaping Gold Prices

The major historical events that have triggered the gold rallies are discussed below.

1980 – Soviet-Afghan War & High US Interest Rates

Cold war tensions escalated with the Soviet invasion of Afghanistan. This war created geopolitical uncertainty. At the same time, high interest rates in the US impacted gold demand, and prices surged.

1990 – Gulf War

Iraq’s invasion of Kuwait created instability in the Middle East. This instability resulted in a peak in oil prices and boosted gold demand due to rising geopolitical risks.

1997-1998 – Asian Financial Crisis

The Asian financial crisis started with the collapse of the Thai baht. This crisis destabilized Southeast Asian economies, increasing gold’s appeal as a safe-haven asset.

2001 – 9/11 Terrorist Attacks

The September 11 attacks led to a surge in safe-haven demand for gold as global markets reacted to heightened uncertainty. Gold prices bottomed and started to surge.

2003 – Iraq War

The US invasion of Iraq fuelled concerns over Middle Eastern stability, adding to gold’s safe-haven appeal during heightened geopolitical tensions.

2008 – Global Financial Crisis

Triggered by the collapse of Lehman Brothers, this period saw massive economic fallout, and gold surged as investors sought stability amid market turmoil.

2010 – European Debt Crisis

Sovereign debt concerns in Greece, Spain, and other Eurozone countries led to a spike in gold demand as a hedge against currency instability.

2016 – Brexit Vote

The UK’s decision to leave the European Union introduced economic uncertainty, driving demand for gold as a safe haven amid fears of financial instability.

2018-2019 – US-China Trade War

The increased tariffs and trade tensions created volatility in global markets, and gold prices rose as investors turned to safe-haven assets.

2020 – COVID-19 Pandemic

The pandemic led to global economic shutdowns, extensive fiscal stimulus, and market volatility, which propelled gold demand.

2022 – Russia-Ukraine Conflict

Russia’s invasion of Ukraine destabilized markets, triggering a rush to gold due to concerns over global stability and economic sanctions on Russia.

Harris and Trump present competing visions that could drive distinct economic and geopolitical scenarios. Harris emphasized economic support for first-time homebuyers, families, small businesses, investments in renewable energy and continued backing of domestic oil production. Her commitment to supporting US allies in the context of the Russia-Ukraine conflict adds another layer of potential geopolitical impact. On the other hand, Trump focuses on policing, immigration, and boosting tariffs on Chinese goods, along with pledging to end the Russia-Ukraine war through diplomatic measures. The platforms of both candidates are starkly different. Key areas of focus include trade relations, energy investments, and the strength of the US dollar.

The chart below shows the gold price patterns during Donald Trump’s and Joe Biden’s presidencies. Donald Trump’s announcement as president drove the gold price sharply upward, breaking above the key level of $1,350. An inverted head-and-shoulders pattern determined this level, completed after his announcement. The gold value reached a record level of $2,075 just before the 2020 election.

On the other hand, the gold price consolidated below the key level of $2,075 during Joe Biden’s presidency. The price broke above $2,075 and initiated the next surge higher during the last year of Biden’s term. The market is now approaching the same overbought region observed just before the previous presidential election, as indicated by the RSI on the monthly chart.

Major Drivers of Gold Prices During Donald Trump’s Presidency

During Donald Trump’s presidency (2017-2021), gold prices experienced significant volatility and sharp increases due to geopolitical and economic events. Uncertainty arose from his administration’s aggressive stance on international trade, particularly the U.S.-China trade war. Tariffs on Chinese goods and countermeasures sparked fears of a global economic slowdown. Investors turned to gold as a safe haven against potential inflation and currency devaluation. Trump’s “America First” policy raised geopolitical isolation concerns, further driving gold demand. His economic policies, including tax cuts and extensive government spending, fueled worries about a growing federal deficit and long-term inflation. The Federal Reserve responded with rate cuts to stabilize markets. The COVID-19 pandemic in 2020 intensified these trends, as large stimulus packages increased inflation fears and pushed gold prices higher as a store of value.

Major Drivers of Gold Prices During Joe Biden’s Presidency

Economic policies and global geopolitical factors influenced gold prices during Biden’s presidency. The administration implemented the large-scale fiscal stimulus of the $1.9 trillion American Rescue Plan to aid economic recovery from COVID-19. This increased money supply and inflation fears prompted investors to turn to gold as a hedge against currency devaluation. The Federal Reserve kept interest rates low during the early presidency years, making gold more attractive. The Russia-Ukraine conflict boosted demand for gold as a safe haven. Moreover, U.S.-China relations and debt ceiling debates added further uncertainty. The inflation reached multi-decade highs in 2022, sustaining gold’s appeal even as the Fed raised interest rates to control inflation.

Gold Market Levels Tied to Trump and Harris Policies

As the US election approaches, the gold price surges above a 44-year trendline on the quarterly log chart. The price closed Q3 2024 above this trendline, indicating a significant breakout. This breakout followed strong bullish patterns, including the cup formation, which was broken at the key level of $2,075.

Continuing the bullish trend after the strong quarterly close suggests that 2024 could be a strong year during the last months. Moreover, Q3 2024 was the biggest quarter in gold’s history regarding price gains in US dollars per ounce. The price may experience significant volatility as the election results approach, potentially pushing it back below this trendline or causing it to surge higher, depending on the election outcome.

The price has hit strong resistance on the weekly chart, defined by the trendline of the ascending channel pattern. Moreover, the RSI is extremely overbought, signalling a potential correction. The black dotted trendline runs parallel to the ascending channel, indicating the extension of this resistance on the weekly chart. The price range of $2,800 to $3,000 highlights the strong resistance on the weekly chart.

How Trump and Harris Policies Influence Gold Prices?

If Kamala Harris wins the election, gold prices may experience a decline in the weeks following the outcome. This decline can be validated by the strong long-term resistance observed on the weekly chart, including the market overbought conditions. Her presidency is anticipated to be less inflationary than Trump’s, reducing the urgency of investors using gold as an inflation hedge. Harris’s administration would also likely uphold economic stability similar to that of the Biden administration, which could reduce gold’s appeal as a safe-haven asset. Nevertheless, should gold prices dip initially, they are projected to rise again in 2025 if US interest-rate cuts continue, enhancing gold’s long-term attractiveness. Furthermore, strong resistance on the weekly chart suggests that gold may encounter resistance around the $2,800-$3,000 levels, potentially triggering a significant correction.

On the other hand, if Donald Trump wins the election, gold prices are expected to climb due to increased inflationary pressures and heightened uncertainty. In this case, the price can break the resistance and continue to rise in a parabolic fashion. Trump’s policies, such as higher tariffs and a more aggressive stance on trade, could lead to greater market unpredictability and inflation. These dynamics boost gold’s appeal as a safe haven. His economic plan includes removing subsidies for electric vehicles and altering vehicle emission standards, which could raise oil demand and fuel inflation. These factors and the geopolitical risks tied to Trump’s unpredictable foreign policy would make gold an attractive investment as a safe-haven asset and a hedge against rising prices.

Final Words

In conclusion, the US presidential election between Kamala Harris and Donald Trump introduces significant potential for shifts in the gold market. Each candidate’s policies are likely to drive unique economic and geopolitical scenarios. Harris’s presidency could initially lead to decreased gold prices due to expectations of reduced inflationary pressure and a more stable economic outlook. However, long-term price increases may follow if interest rates are cut.

On the other hand, a Trump presidency is expected to increase inflation and geopolitical uncertainty, making gold a more attractive safe-haven investment. Investors must consider these dynamics and prepare for heightened volatility, as the election outcome will shape gold’s trajectory in conjunction with other economic indicators and Federal Reserve actions.

From a technical perspective, the gold market is at the intersection of strong, key long-term resistance, where a Trump presidency could push prices higher in a parabolic fashion. However, the price may experience a significant correction before the next upward move. Moreover, geopolitical uncertainties from the Middle East keep gold elevated, serving as a primary driver for recent rallies. The strong resistance in the gold market is $2800 to $3,000, and the next move will depend on the election outcome.

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Gold is forecast to climb higher than previously expected as central banks in emerging markets have ramped up purchases, according to Goldman Sachs Research.

Gold usually trades closely in line with interest rates. As an asset that doesn’t offer any yield, it typically becomes less attractive to investors when interest rates are higher, and it’s usually more desirable when rates fall. While that relationship still holds, central bank purchases have been a powerful force, resetting the level of gold prices higher since 2022, Goldman Sachs Research analyst Lina Thomas writes in her team’s report.

What is the prediction for gold prices for 2025?

The precious metal is predicted to rise to $3,000 per troy ounce by end-2025, Thomas writes. Gold has risen to multiple all-time highs this year.

Thomas points out that the relationship between changes in the gold prices and changes in interest rates still exists, but sizable central bank purchases of gold bars have reset the relationship between rate and price levels since 2022. Goldman Sachs Research estimates that 100 tonnes of physical demand lifts gold prices by at least 2.4%.

Why has the price of gold increased?

Concern about the risk of financial sanctions is likely one of the reasons central banks have increased their buying of gold. Emerging market central bank purchases of gold have risen notably since the freezing of Russian central bank assets in 2022, following Russia’s invasion of Ukraine, according to Goldman Sachs Research. 

Thomas also points out that central banks in developed markets have tended to have relatively high holdings of gold as a share of reserves. For instance, the US, France, Germany, and Italy have gold holdings that make up 70% of their reserves. Their emerging market counterparts, by contrast, have smaller shares. China, for example, reports to have 5% of its reserves in the metal. Seen that way, some central banks in emerging markets are catching up to their counterparts in developed countries.

Policymakers also appear concerned about the debt sustainability of the US, which has about $35 trillion of borrowing, amounting to 124% of GDP. Many central banks have the bulk of their reserves in US Treasury bonds, and policymakers may be increasingly concerned about their exposure to fiscal risks in the US.

With the US presidential election in focus, Western investors are returning to the gold market, according to Goldman Sachs Research.  Gold may offer hedging benefits against potential geopolitical shocks, including potential rises in trade tensions, Federal Reserve subordination risk, and debt fears.

ETF holdings of gold may climb

Many Western investors have been nervous about chasing gold prices higher, Thomas says. Some think they’ve missed the rally and are wary of buying gold at all-time highs. Some are also struggling to make sense of gold prices, which in 2022 began to diverge from their traditional relationship with interest rates.

That said, Goldman Sachs Research expects gold holdings in Western exchange-traded funds to gradually increase as interest rates fall, which would be in line with their historical relationship. Even as central bank buying of gold may be moderating, there could be some competition for gold bullion between central banks and Western investors as gold ETF holdings begin to climb.

“Long-term investors are now interested in holding gold because rates are lower,” Thomas says. “At the same time, central banks holdings are probably still going to pile up.”

Read the full article HERE.

Gold continues to benefit from safe-haven demand as it reaches another record high ahead of the U.S. election next week.

The spot price of gold has risen to $2,766.52 per ounce, breaking a previous high set last week. The price of gold has now climbed by a third so far this year. Research conducted by Goldman Sachs has said gold could reach the $2,900 mark in early 2025, with several analysts previously telling Newsweek the $3,000 milestone isn’t far off.

Gold is considered a safe-haven investment, particularly during times of international turmoil, such as Russia’s ongoing invasion of Ukraine, the Israel-Hamas war and political uncertainty, with the U.S. presidential election less than a week away. According to a report by Reuters, gold prices have surged more than 34 percent in 2024 so far.

“Gold is very much being anchored on the U.S. election outcome. In the near term, spot gold will face resistance at $2,800, then followed by $2,826,” Kelvin Wong, OANDA’s senior market analyst for Asia Pacific, told Reuters.

Democratic nominee, Vice President Kamala Harris, and Republican pick, former President Donald Trump, are entering the final stretch of their campaigns for the White House, with the election on November 5. Recent polls indicate a win could be narrow for either candidate, with several key swing states currently too close to call.

A spike in gold prices during a time of significant geopolitical unrest comes as no surprise, Michael Martin, vice president of market strategy at TradingBlock, told Newsweek.

“Ongoing conflicts, such as the war in Ukraine and tensions in the Middle East, have driven investors toward safe-haven assets like gold,” Martin said. “Global tensions have historically coincided with spikes in gold prices. For example, during the 1979 Soviet invasion of Afghanistan, gold more than doubled in value.”

“Concern about the risk of financial sanctions is likely one of the reasons central banks have increased their buying of gold,” Goldman Sachs reported. “Emerging market central bank purchases of gold have risen notably since the freezing of Russian central bank assets in 2022, following Russia’s invasion of Ukraine.”

For example, China purchased a total of 29 tonnes of gold between January and April this year, according to a September report by the World Gold Council, although this buying spree has now eased off.

There has also been a surge of new buyers this year, Nick Fulton, managing partner at USA Pawn, previously explained to Newsweek.

“As a brick-and-mortar seller, we are seeing many first-time buyers. With gold seeing an increase of 25 percent in value in the last six months, it is attracting new investors,” Fulton said.

Read the full article HERE.

Putting “fun” back into low- and middle-income Americans’ budgets could be years away with most of their income barely covering the surge in costs for bare necessities, economists said.

Even with annual inflation last month cooling to the lowest level since February 2021 and wages rising faster than inflation, low- and middle-income Americans are just barely covering their essentials, which include groceries, shelter, utilities and gasoline, economists say.

That’s because when inflation slows, it only means prices aren’t rising as quickly, not that prices are declining. So, Americans continue to pay higher prices for everyday needs.

Low- and middle-income Americans were hit disproportionately harder than their higher-income peers because essentials account for a larger share of their budgets, and their discretionary spending, or spending on nonessential items like dining out, vacations and entertainment, is only just recovering, economists say.

“For a very large share of Americans, the bottom 60% are spending more on essentials than before the pandemic,” said Michael Pearce, Oxford Economics deputy chief U.S. economist. “The burden is hardest among the lowest income but also touches middle income. Spending patterns of low-income Americans will take years to recover.”

‘No financial progress’

Middle-income Americans’ purchasing power, after being sharply eroded during the 2021-2022 inflation shock, just recently moved above 2019 levels, according to the monthly Primerica Household Budget Index (HBI). HBI assesses whether families can get ahead financially or if they may fall behind based on the affordability of everyday necessities needed to manage their homes and changes in their earned income.

HBI in August was 102.2%, up from a low of 86.7% in June 2022 when inflation peaked at a 40-year high of 9.1%, and at the highest level since February 2021. Households are neither better nor worse off than they were in January 2019 when HBI was 100%, so the August reading means middle-income Americans were doing slightly better than they were in 2019 and much better off than when they were underwater in 2022.

However, “had the inflation wave not happened, the HBI would be about 112.5%,” said Amy Crews Cutts, economic consultant to Primerica. “This difference explains a lot about low consumer sentiment that even though conditions have improved, households have made almost no financial progress in 5.5 years of hard work.”

A Gallup poll this month showed 52% of Americans said they and their families are worse off today than they were four years ago. “Inflation likely underlies Americans’ perceptions that the economy is poor, even against a backdrop of generally low unemployment, steady economic growth, and record stock and housing values,” it said.

How many years will it take to return to normal?

It depends on wage growth and whether prices of essentials like gas or rent tumble, Pearce said.

The last time low-income Americans’ discretionary spending fell this much, which was during the Global Financial Crisis of 2007-2008, it took five to 10 years for spending patterns to return to previous levels, he said.

“And the reason was gas prices fell,” Pearce said. Global oil prices fell by about 70% between 2014-16, which pushed pump prices sharply lower and helped low-income Americans catch up.

“It’s harder to see some revolutionary cost saving (like that) on the horizon,” he said.

Sales and treats

Christa Engel, 58, continues to financially juggle.

To cope with sharply higher prices, Engel, the manager of a Dunkin’ store in Chicago, said she and her husband not only cut back on “treats” but still buy whatever they can on sale.

“For me, since we have two incomes, it’s not that bad,” she said. “I do try to get stuff on sale as much as possible… like crackers, frozen pizza. We have to cut back on eating out and nonessential small treats.”

Money for essentials must come from somewhere, so people end up “cutting out fun, not saving or spending some of their savings,” said Cutts. “Inflation blew up their budgets. I’m saddened because this is a boom economy, and we want to see people’s economic life quality rising because people have jobs, raises, and companies are doing well. What we’re seeing is a lot of weakness. It shows how powerful inflation is.”

Air conditioning, watering the garden and visiting family were “luxuries” Amy Aaroen, 63, cut back on last summer.

“We have not used the central air this year as much as in the past to keep the bill down,” said Aaroen, who is married and lives in Beloit, Wisconsin. “We were careful when watering the garden so we could keep the water bill down… It (also) costs me about $50 just to go visit my family who are only 1.5 hours away or two and three hours away. I feel like the economy had us traveling less and visiting family less.”

Cold winter in europe households, rising costs of gas and electricity in winter season, dog freezing in living room, warming under blanket near heating radiator

Will upcoming holiday spending be affected?

Low and middle-income consumers will probably still be bargain-hunting this holiday season, analysts said.

“We are continuing to see inflation’s impact on the middle-class consumer,” said Adam Davis, managing director at Wells Fargo Retail Finance. “Discretionary spending on larger ticket items is down, which could indicate holiday budgets may tighten, and certain consumers might even trade down on items, with many actively looking for bargains.”

Aaroen says that through belt-tightening during the year, “we’ve somehow managed to keep a budget that will probably not affect our coming holidays too much. We have 11 grandchildren and usually spend $25 to $30 on each of them. And we will probably this year as well. We may need to use the credit card though.”

And “yes, we will definitely see family for the holidays,” she said. “But not as often in between.”

Read the full article HERE.