Trump Signals Plans To Weaken Dollar - CNBC

Release Date: 
Friday, January 20, 2017

Gold prices remained above $1200 per ounce this week as the nation prepared to inaugurate Mr. Trump as our 45th President.

“Gold prices held steady on Friday and were on track for their fourth weekly gain in a row, buoyed by a weaker dollar ahead of the inauguration of U.S. President-elect Donald Trump later in the day… ‘There is a bit of safe-haven buying ahead of Trump's inauguration,’ said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.

"Trump's protectionist statements, with mixed promises of tax cuts and infrastructure spending, have increased demand for gold as a safe-haven. ‘The incoming U.S. administration is still a relatively unknown factor, certainly in comparison to other incoming administrations in recent decades,’ HSBC analyst James Steel said in a note.

"The metal has risen more than 7 percent since dropping to its lowest in more than 10-1/2 months in December….” (Gold price eyes Trump, heads for fourth week of gains,” Reuters, 1/20/17.)

Gold ended the week up $13.10, closing at $1,211.00. Silver prices closed at $17.16, up $0.25.

Trump Signals Plans To Weaken Dollar - CNBC
In a pair of articles, CNBC reported that President Trump believes the U.S. dollar is too strong, making us less competitive against countries like China. His comments sent gold prices higher.

“President-elect Donald Trump's shock comment that the dollar is too strong suggests the U.S. is about to declare as dead a two-decade policy of publicly favoring a strong currency. ‘There's no question that the Trump administration would not want a strong dollar. A strong dollar does nothing good for whatever Trump is basically trying to do,’ said David Woo, Bank of America Merrill Lynch's head of global rates and foreign exchange research…

“Trump's remarks also took a shot at one of the most crowded trades on the planet — long wagers on the dollar. That trade has been a bet that Trump's policies will reflate the economy, causing interest rates and the greenback to rise. But that dollar move is at odds with building a more powerful American manufacturing base, because a strong dollar makes exports more expensive for foreign buyers…

“’This is the first time we have a president-elect say the dollar has gone too far,’ said Marc Chandler, chief foreign exchange strategist at Brown Brothers Harriman. ‘He's saying things and doing things that no president has ever done before… It raises questions. Are we back to Lloyd Benson? He talked the dollar down and the dollar collapsed. Is this a jettison of the Rubin strong dollar policy? We don't know…’

[From the second article] “Gold jumped more than 1 percent to its highest in nearly eight weeks on Tuesday after U.S. President-elect Donald Trump said the dollar was "too strong," sending the greenback lower… ‘This year there are lots of uncertain political events, including elections, so if you looking for a bit of a refuge from stormy seas gold will be one of those safe assets that you would park some money in,’ Bhar said.

“Also boosting gold is uncertainty over Trump's plans for the U.S. economy after his inauguration on Friday… his protectionist statements and a flurry of off-the-cuff Tweets have kept many investors from adding to risky positions, instead opting for gold. ‘Trump's ‘unorthodox view of the world is certainly going to contribute to much more volatility in the markets next year,’ said INTL FCStone analyst Edward Meir …

“Credit Suisse said in a note it remained "constructive" on gold prices, forecasting an average of $1,338/oz in 2017….” (“Trump just signaled the death of Clinton-era strong dollar policy;” “Trump's comments on strength of dollar prop up gold,” CNBC, 1/17/17/.)

How To Invest In A Trump Economy – Greenlight Capital
In a letter to clients, the founder of hedge fund Greenlight Capital, David Eihorn, offered his views on how to invest in a Trump economy.

“Rather than look backward, we’d like to share our views of what a Trump Presidency (TP) might look like and why we believe we are well-positioned for 2017. In short, we believe that the post-Great Recession easy money policies have been good for Wall Street but bad for Main Street. It’s possible that the TP reverses these policies, which would be good for Main Street but rough on Wall Street.

“While it’s hard to know exactly where President-elect Donald Trump stands from day to day, his main economic policy objective appears to be employment. To that end, he has proposed corporate tax cuts, infrastructure investment, and military build-up, combined with anti-immigration policies and trade protectionism. To the extent that he can implement these policies, the economy should accelerate, and given that we are starting with less than 5% unemployment, a labor shortage could develop.

“In response, monetary policy is poised to tighten… In the near term, this stimulus combined with the benefit to savers will add fuel to an accelerating economy and a tightening job market. Ultimately, wage inflation could become a drag on corporate profitability and higher inflation may force the Fed to raise rates substantially, potentially causing the next recession…

“Lastly, we continue to own gold. Our sense is that Mr. Trump doesn’t hold any core policy beliefs and is apt to change his mind as he sees fit. This will lead to more political and economic uncertainty and less stability. There has been a knee-jerk decline in gold since the election, as investors presume that higher short-term rates are good for the dollar and bad for gold.

“Ultimately, we believe the case for gold is broader: greater economic, geopolitical and policy uncertainties, much wider budget deficits, and the possibility of an inflation problem all support gold (to say nothing of what might be required to redecorate the White House to Mr. Trump’s tastes)….” (Greenlight Capital Letter to Investors, 1/17/17.)

History Says New President Is Good For Gold – Bloomberg
Bloomberg reported that a new President is generally good news for gold.

“Gold bulls wagering the bullion rally has more room to run may have history on their side with the arrival of a new U.S. president. A look at recent presidential transitions supports optimism among traders over the metal’s prospects. Gold has averaged gains of almost 15 percent in years marking the inauguration of a new president since the 1970s, advancing in five of those seven years …

“From Presidents Gerald Ford to Barack Obama, bullion has often served as a haven in times of political flux. The metal has climbed almost 5 percent this year as questions over the possible economic impact of Donald Trump’s policies add to investor angst over Brexit and mounting trade frictions. Bulls reason that gold will extend its gain as scant details of Trump’s fiscal stimulus program and tensions with trading partners including China unnerve investors.

“’We have no idea what’s going to happen with some of Trump’s policies -- everybody is a little nervous,’ said Axel Merk, San Francisco-based founder of Merk Investments LLC, which manages $300 million in assets. ‘Gold is relatively undervalued and will push higher … What happens frequently is you have a new president, there’s a lot of euphoria and then reality kicks in… It’s more difficult to implement policies.’” (“Bullion Bulls Have History on Their Side as Trump Takes Helm,” Bloomberg, 1/19/17.)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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